Today’s column examines how bonuses are treated by the earnings test, sequencing retirement and spousal benefits, some potential ramifications of filing and suspending and how widow(er)'s benefits are calculated. Larry Kotlikoff is the founder and president of Economic Security Planning, a company that markets Maximize My Social Security, a Social Security benefits calculator referred to in this post.
See more Ask Larry answers here.
Ask Larry about Social Security:
Is My Bonus Subject To The Earnings Test?
Hi Larry, I was "retired" by my company last year at 65. I had planned on starting Social Security this spring at my FRA of 66. I have no earned income from employment since last year, although have had distribution from an IRA. I recently received a check from my previous employer for a bonus based off my time with the company. They withheld Federal, State, and Social Security taxes from the check. Since I am no longer employed by this company, will this count under the Earnings Test? Thanks, Jason
Hi Jason, Bonuses paid after the end of an employment relationship are generally counted for earnings test purposes effective the date the employment relationship ended. So, it sounds like your bonus could be excluded from the earnings test this year. You don't say when or if you've applied for Social Security benefits, so I don't know if this issue is material. If you don't start drawing benefits prior to full retirement age, the earnings test won't apply to you. If it is material, however, you would need to explain the circumstances of your bonus to Social Security in order to have them exclude the bonus from your current year earnings. Otherwise, they will assume that the bonus was earned in the year in which it was paid. Best, Larry
Can I File For Early Retirement Benefits And Get Unreduced Spousal Benefits Later?
Hi Larry, I am 65 and so is my husband. He will retire on his full retirement age in 2018. My retirement benefit right now is $700 a month. At my full retirement age it will be $815. At age 70 it will be $1,075. My husband 's retirement benefit at full retirement age will be $2,725. Can I file a restricted application for my retirement benefit now and then get my full spousal benefit when I reach full retirement age in 2019, even though my husband will start receiving his benefit eight months earlier? Thanks, Donna
Hi Donna, You could file for reduced retirement benefits now without also filing for spousal benefits, provided that your husband hasn't yet filed for his benefits. And, since you were born prior to 1/2/1954, you could then wait until full retirement age (FRA) to apply for spousal benefits, even if your husband files for his benefits between the time you filed for retirement benefits and when you reach FRA. However, if you choose to follow this strategy, you will be stuck with the reduction that you took on your own account for as long as both you and your husband are living.
For example, using the figures cited in your question, if your FRA retirement benefit amount is $814 but you choose to take benefits early at a reduced rate of $710, the $104 reduction would continue even after you become eligible for spousal benefits. Your spousal benefit rate at FRA would be calculated by subtracting your FRA retirement benefit amount from 50% of your husband's FRA retirement benefit amount, leaving $547 (i$2,722 / 2 – $814) going by your figures. This excess spousal benefit would then be paid in addition to your reduced retirement benefit of $710, giving you a combined benefit rate of $1257. Thus, instead of getting a full half of your husband's FRA retirement benefit amount, you would get $104 less per month instead. You can use an expert Social Security benefits calculate, whether it's my company's Maximize My Social Security or another well designed program, to determine your best filing strategy. Best, Larry
Do I Still Get Spousal Benefits If I File And Suspend?
Hi Larry, I deferred and suspended until 70. Now that my husband has filed on his own record, can I get my spousal benefit till I reach 70 and then apply for my retirement benefit at a much higher rate? Thanks, Paula
Hi Paula, it depends what you mean by 'defer and suspend.' There's actually no such thing: you can suspend a retirement benefit but only after actively filing for it. If you delay or defer filing for it, there's nothing to suspend so you literally cannot delay or defer and suspend. If you did file for and then suspend your retirement benefit, then you'd be eligible for only your excess, not your full, spousal benefit, which could be very small or even $0 if 100% of your FRA retirement benefit amount is greater than 50% of your husband's FRA retirement benefit amount. If you simply delayed your retirement benefit and did not file for and suspend it, then you may be able to get s spousal benefit, but he'd have to file for his retirement benefit first. An expert Social Security benefits calculator, whether Maximize My Social Security marketed by my company or another very precise program, can help sort out your options. Best, Larry
Will My Wife's Widow's Benefits Be Reduced If She Takes Her Own Benefits Early?
HI Larry, I turn 66 this September. My wife is 4 years younger. With my earnings record, I will receive close to the maximum benefit. My wife, on the other hand stayed at home to raise our children and did not work full time. She would qualify for marginal benefits ––– I think they are around $100 per month at full retirement age. If she starts collecting spouse benefits at 62, and I were to die in 4 years after she has reached full retirement age would her survivor benefits be 100% of mine or would they be reduced because she started collecting spousal benefits before reaching full retirement age? Thanks, David
Hi David, If you die at or after your wife reaches full retirement age, she would receive your full benefit amount even if she starts drawing her own retirement benefits before FRA. She wouldn't receive both benefits, though, just essentially the higher of the two. Her widow's rate would include any delayed retirement credits that you earn by waiting past FRA to apply, so you might want to consider waiting until age 70 in order to maximize both your monthly rate as well as your wife's widow's rate in the event you die first.
And I recognize that I say this a lot, but you could use an expert Social Security benefits calculator such as my company's software or another top rated program, to determine the best filing strategy for you and your wife. Best, Larry
Can My Husband Receive Spousal Benefits Before I File For My Benefits?
Hi Larry, My husband is 2 years older than me and began drawing his retirement benefit at 62. When he reaches age 65, can he draw spousal benefits based on my record, about $500 per month more than his retirement benefit, until I file for my retirement benefit at 65 and 4 months? Thanks, Carmen
Hi Carmen, Your husband can't receive spousal benefits until you start drawing your retirement benefits. Best, Larry
To learn more about your Social Security options, visit Economic Security Planning, Inc.
