Today’s Social Security column addresses questions about child benefits and the earnings test, effects of not working for a number of years before filing and how delayed retirement credits are applied to benefit rates. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.
See more Ask Larry answers here.
Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.
Do I Have To Take Social Security Retirement Benefits To Get Child Benefits?
Hi Larry, I am almost 60 with two minor children. I still earn $100,000 however I contribute the max to a 401k. I wanted to claim child’s benefits at 62. Do I have to claim retirement benefits also or can I claim just for them? I will continue at my job for at least five years after turning 62. I know that Social Security will be reduced because of my income.
Are those lost benefits repaid? Also, as I continue to work, Am I increasing the benefit rates? My wife still works and is 8 years younger than me, earnings a decently high income. Thanks, Ethan
Hi Ethan, Yes. Child benefits can only be paid to children whose parent is either a) drawing Social Security retirement or disability benefits, or b) is deceased. Furthermore, the Social Security earnings test applies not only to the worker’s benefits, but also to any auxiliary (e.g. spousal, child’s) benefits payable on the worker’s account. Therefore, there is no way that your children could be paid benefits from your record for any months that your benefits are withheld due to the earnings test.
Until the year in which you reach full retirement age (FRA), Social Security would need to withhold $1 of the benefits payable on your record for every $2 that you earn in excess of the earnings test exempt amount. The exempt amount is $19,560 in 2022.
Whether or not you or your children could actually be paid any benefits prior to your FRA depends on your yearly earnings and your PIA.
Benefits withheld due to the earnings test are not repaid to the worker or their children at any time in the future. However, the worker’s monthly benefit rate is adjusted once they reach FRA to remove any age reduction applied for months that the worker wasn’t paid due to the earnings test.
So if the earnings test resulted in no benefits being paid to prior to a worker’s FRA, their benefit rate would be increased at their FRA to their unreduced rate. But neither the worker nor their children would be repaid any of the benefits that were withheld prior to the month the worker reached FRA though.
And, finally, yes your future earnings could potentially increase your monthly benefit rate regardless of when you claim benefits. Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings, so a person can continue to increase their benefit rate for as long as they keep working as long as they earn more in a year than they did in one of their previous 35 highest earnings years.
It sounds like you may want to consider using my company’s software — xxxxx — to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Will My Benefit Be Reduced If I Don’t Go Back To Work?
Hi Larry, I am retired and cannot earn more than the annual earnings limit until I’m over 62 (for internal pensioner rules with my ex-employer; I receive a monthly Social Security benefit as part of my pension until 62 and I’ll lose that if I earn more than the SSA’s annual earning limit till I hit 63.
I retired at 59 and now my SSA earning will show $0 unless I go back to work and get a dollar figure to replace the zeros — earnings that I would cap at the annual earnings limit until I’m 62. My highest earning years were my last five years of employment. Will my benefit be reduced if I do not go back to work and continue to get zeros on my earnings record until my full retirement age? I don’t plan to collect benefits till FRA (67) or 70.
Also, will the family maximum limit what my spouse and I can receive? Thanks, Ashleigh
Hi Ashleigh, Your benefit rate won’t go down if you don’t go back to work, it just won’t go up. Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings, so if you don’t return to work your benefit rate will be based on your highest 35 years to date. If you have fewer than 35 years of Social Security covered earnings, though, then zero earnings years will be included and will drag down your average.
For example, a person can qualify for Social Security retirement benefits with the equivalent of as few as 10 years of covered earnings. But, if the person only worked in 10 years, their earnings in those years would still be averaged over 35 years. Averaging in 25 zero earnings years obviously lowers the per year average and the resulting benefit rate. Additional years of covered earnings would knock out some of those zero years and increase the person’s benefit rate, but not returning to work wouldn’t cause their benefit rate to go down.
The family maximum benefit (FMB
FMB
) won’t limit either your or your husband’s benefit rates assuming that no children are drawing benefits on your accounts. The FMB simply limits the amount that can be paid on any single individual’s account when auxiliary or survivor benefit are involved. There’s no set limit on the amount that a couple can receive when they are each being paid benefits based on their own work records. Best, Larry
Wouldn’t I Multiply My Prior Year Rate By 1.08 To Calculate My Benefit Rate If I Delay My Benefits Between FRA And Age 70?
Hi Larry, I am currently 62. I thought the amount went up by 8 % every year so should it not be 1.08 times the prior year amount? Thanks, Tom
Hi Tom, Not exactly. Delayed retirement credits (DRC) add 2/3rds of 1% to your full retirement age (FRA) rate for each month that you delay starting your benefits between FRA and age 70.
In other words, the 8% per year increase caused by DRCs is calculated based on your FRA rate, or primary insurance amount (PIA), not your prior year’s rate. Multiplying your prior year rate after you reach FRA by 1.08 would have the effect of compounding the DRC increases. Best, Larry