Economic Security Planning, Inc.
Today’s column addresses questions about how continued income can affect benefit amounts, foreign pension and the Windfall Elimination Provision, the earnings test and the exempt amount, disability benefits before FRA and benefits for adopted grandchildren. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, a company that markets Maximize My Social Security and MaxiFi Planner.
See more Ask Larry answers here.
Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.
Will Paying Into Social Security Before I Retire Increase My Retirement Benefit?
Hi Larry, If I plan to retire in July of 2020 at 66, does it make sense to pay into Social Security for the months before then? Thanks, Steve
Hi Steve, That depends on how high your earnings would be and the amount of the lowest of your current top 35 wage-indexed earnings years. Your Social Security retirement benefit amount will be based on an average of your highest 35 years of wage-indexed earnings, and you can raise your benefit rate by replacing one of your previous highest 35 years with a higher year of earnings.
I should also point out that you can’t pay Social Security taxes voluntarily, and you can’t legally avoid paying Social Security taxes on covered earnings. You can only pay Social Security taxes and receive the appropriate credits if you work in Social Security covered employment or have a net profit from self-employment. Both of my company’s two tools — Maximize My Social Security or MaxiFi Planner — would allow you to enter your projected current and future year earnings so that you could gauge the effect that those earnings would have on your benefit rate. Best, Larry
Will I Be Exempt From Or Subject To A WEP Deduction?
Hi Larry, I have paid in my 40+ quarters of Social Security contributions. But I also worked for an international organization overseas for several years without making Social Security contributions. I now receive a pension paid by this organization that exceeds the WEP threshold. When I file for my Social Security retirement benefits, will I be exempt from or subject to, a WEP deduction? My pension has a non-US origin. Thanks, Phil
Hi Phil, The fact that your pension is from a non-US source would not exclude it from causing your benefit rate to be reduced due to the Windfall Elimination Provision (WEP). Since the pension is based on your work earnings and since you did not pay Social Security taxes on those earnings, it’s likely that your Social Security retirement benefit rate will be affected by WEP.
When WEP applies, Social Security retirement benefits are calculated using a less generous benefit computation formula. However, there is a WEP guarantee provision that limits any resulting reduction in your Social Security rate to no more than half of the amount of your non-covered pension. Best, Larry
Will I Lose Benefits If My Services Are Deemed Substantial Even If I Earn Less Than The Exempt Amount?
Hi Larry, I am receiving Social Security retirement benefits before FRA, when I will file for my survivor’s benefit and am confused about self-employment and what is meant by “substantial services.” I just became an independent contractor for a state funded program working with vulnerable populations. What concerns me is that even if I keep my part time earnings below the minimum cap, I’m afraid there might be a risk of losing benefits if my services are deemed as “substantial.” Is this concern warranted? Thanks, Abby
Hi Abby, As long as your earnings are below the exempt amount, you can be paid all of your benefits regardless on how many hours you work. The monthly retirement test is only looked at as an alternative to the annual earnings test when the annual test would result in the withholding of at least some of the worker’s benefits. If your calendar year earnings don’t exceed the annual earnings test exempt amount, the monthly breakdown of your work and earnings is irrelevant. Best, Larry
Will My Benefit Rate Rise When I Reach Age 62?
Hi Larry, I receive Social Security disability benefits for having both hips replaced. When I reach 62, will I see an increase? Thanks, Tim
Hi Tim, Turning 62 will have no effect on your benefit rate. Qualifying for SSDI essentially entitles you to start receiving the equivalent of your full retirement age (FRA) Social Security benefit early. If you remain eligible for SSDI until you reach FRA, your SSDI benefits simply convert to regular Social Security retirement benefits at the same rate.
If you were to switch from SSDI to regular Social Security retirement benefits prior to FRA, your benefit rate would be reduced for age. If you switched at age 62 the reduction would amount to 25% to 30%, depending on your year of birth. The only times that it might be advantageous to switch from SSDI to retirement benefits before FRA is a) when a person is also receiving Worker’s Compensation (WC) benefits and their SSDI benefits are being offset as a result, or b) if family members are eligible for auxiliary benefits on the disabled worker’s record and the family maximum benefit (FMB) benefit rate would be higher if the disabled worker switched to retirement benefits. Best, Larry
Will My Granddaughter Be Entitled To Any Benefits After I Die If I Adopt Her?
Hi Larry, I’m a single grandparent currently receiving $1,584 monthly. I had to take early retirement benefits because I was granted custody of my granddaughter when she was 11 months. She’s now 3 years 9 months. I was told by the SSA worker who I spoke to about the application process, that I can get additional $800-$900 per month if I adopt my granddaughter. If this is true, should anything happen to me, would she be entitled to any future benefits? Thanks, Art
Hi Art, Your granddaughter can’t qualify for child’s benefits on your record unless a) you adopt her, or b) both of her natural parents are either deceased or disabled. If you do adopt your granddaughter, she could potentially qualify for child’s benefits on your account while you’re living and then surviving child’s benefits if you die. Social Security child’s benefits can be payable until a child reaches age 18, or is up to age 19 and in high school, or at any age if the child became disabled prior to age 22.
If a child does qualify for benefits on the record of a parent or grandparent, their benefit rate can be up to 50% of the parent’s or grandparent’s primary insurance amount (PIA) while the parent is living, or up to 75% of the parent’s or grandparent’s PIA if the parent is deceased. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing at full retirement age. Best, Larry