Ask Larry: Will Lower Earnings Next Year Reduce My Social Security Retirement Benefit Rate?

Social Security may be one of your largest assets. What and when you collect will make a huge difference to your lifetime benefits.

Today’s column addresses whether lower earnings before retirement will decrease benefit amounts, how benefits can be reinstating after suspending them, how to ensure benefits begin at full retirement age, whether to file and suspend and potential effects of the Bipartisan Budget Act of 2015. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, a company that markets Maximize My Social Security and MaxiFi Planner. Both tools maximize lifetime Social Security benefits. MaxiFi also finds retirement account withdrawal strategies and other ways to lower your lifetime taxes and raise your lifetime spending. Most important, it suggests how much to spend and save each year to enjoy a stable living standard through time.

See more Ask Larry answers here.

Ask Larry about Social Security:

Will Lower Earnings Next Year Reduce My Social Security Retirement Benefit Rate?​​

Hi Larry, I’ll be 66 in November 2020. I plan to retire this November but hold off on retirement benefit till 66. I’ll still do some work after officially retiring and my income in 2020 will be about 50% of 2019. Will this reduction in income reduce my benefits? Thanks, Neil

Hi Neil, Your Social Security retirement benefit amount will be based on your highest 35 years of wage-indexed earnings. If your 2020 earnings aren’t one of your highest 35 years, then they simply won’t be used in the calculation. So they would then neither raise nor lower your benefit rate.

In other words, you can’t lower your benefit rate because your 2020 earnings will be lower than normal, but they may not be high enough to raise your benefit rate at all or by as much as they would if you had higher earnings in 2020.

You can use maximization software to calculate your benefit rate with and without your expected 2020 earnings so that you’ll know for sure what effect they will have, if any. One of my company’s two tools — Maximize My Social Security or MaxiFi Planner — can help maximize your lifetime Social Security benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry​​

Can I Reinstate My Benefits Online?​​

Hi Larry, Several years ago I set up a “My Social Security” online account. I filed and suspended my Social Security retirement benefit at 66 so that my wife could claim her spousal benefit while I delay to increase my own retirement benefit. I turn 70 in November 2019 but now I want my retirement benefits to start effective August 2019. Can I do this online? If so, how? If not, how do I do it? Thanks, Anthony

Hi Anthony, Reinstating your benefits from voluntary suspension is not something that you can online. If you didn’t want your benefits to be reinstated prior to age 70, you wouldn’t need to do anything since reinstatement at 70 is automatic. But if you want your benefits to be reinstated in August, you’ll need to contact Social Security before the end of July and and request reinstatement. A written request for reinstatement is not required, but I would recommend that you do so using a form SSA-795. Best, Larry

If I Want To Start Collecting Benefits At Full Retirement Age, What Should I Request As My Starting Date?​​

Hi Larry, If my birthday is July 6 and I want to start collecting Social Security at full retirement age, do I need to request July 6 as starting date or August 1? Will that make any difference? Also, will my earnings for this year through July count towards retirement or just full years on income? Thanks, Mark

HI Mark, If your birthday is July 6 and you want to start drawing benefits effective with your full retirement age (FRA), you would choose July of the year that you reach FRA to start benefits. Social Security benefit payments for the month of July are payable in August, by the way.

If you chose to start drawing your benefits effective in August (i.e. one month after FRA) rather than July, you would receive one delayed retirement credit, which would increase your FRA benefit rate by 2/3rds of 1%. That increase would not be credited immediately, however. You would first be due the extra 2/3rds of 1% effective with your benefit payment for January of the year following the year you reach FRA, but it could take Social Security close to two years after that before they would actually process the recomputation to increase your rate.

Your earnings in the year that you file for benefits can be used in the calculation of your benefit rate starting with your payment for the following January. However, those earnings would only increase your benefit rate if that year’s earnings are higher than one of your highest 35 years of wage-indexed earnings that were used to calculate your initial benefit rate. Best, Larry

Is There Any Reason Why I Should File For My Benefits And Suspend Them Before 70?​​

Hi Larry, I am employed full time and turning 69 in September. I have not registered for Social Security and don’t intend to start collecting my retirement benefit until 70. Is there any reason why I should file and suspend before then? Thanks, Carol

Hi Carol, Only if you have some special reason to do so. You’ll receive the same amount of delayed retirement credits (DRC) whether you file for and suspend your benefits until 70, or if you simply wait until age 70 to apply. Due to the Bipartisan Budget Act of 2015, if you suspend your benefit now after the 4/29/2016 deadline to do so under the old rules, no one would be able to receive an auxiliary benefit based on your record while your retirement benefit is suspended so that would not be a reason to file and suspend. Best, Larry

Will The Changes In SSA Force Me To Switch To My Own Account Sooner?

Hi Larry, I am currently 66 and receiving survivor’s benefits. I had hoped to try to continue receiving this benefit on late husband’s account until at least 68. Will the recent changes in SSA necessitate me taking my retirement benefits on my own account sooner? Thanks, Rosemarie

Hi Rosemarie, The new law, the Bipartisan Budget Act of 2015, won’t force you to switch to your retirement benefit based on your own record. And if your own retirement benefit rate would be higher than your current survivor rate, your best strategy would likely be to wait until 70 to switch to drawing on your own account. Best, Larry

To learn more about your Social Security options, visit Economic Security Planning, Inc.