Ask Larry: Will Not Returning To Work Impact My Social Security Benefits?

Today’s column addresses questions about potential effects on Social Security benefit amounts of not returning to work before filing, when to file to receive the full 32% increase from delayed retirement credits and when it is and is not possible to file for spousal benefits only. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc, which markets Maximize My Social Security and MaxiFi Planner.

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Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

Will Not Returning To Work Impact My Social Security Benefits?

Hi Larry, I am 62 and I made the decision to quit my job due to poor work environment and Covid-19. I don’t plan on starting to draw my Social Security retirement benefit until I reach my full retirement age at 66 1/2 or even perhaps later. Assuming I don’t ever return to work, how will my Social Security benefits be impacted? Will not working before claiming reduce my benefits? Thanks, Hector

Hi Hector, Social Security retirement benefits are calculated based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings. Social Security will end up using your highest 35 earnings years to calculate your benefit rate whether you return to work or not. So stopping work would only adversely affect your benefit rate to the extent that you wouldn’t have any future earnings that might raise your benefit rate by replacing one or more of your previous highest 35 earnings years with a higher future earnings year.

How much if any of an effect stopping work would have on your benefit rate depends on how much you earned in your previous 35 highest wage-indexed earnings years, and how much you would have been earning had you not stopped working. Regardless though, if you wait until your full retirement age (FRA) to start drawing your benefits, then no age reduction will be applied to your benefit rate and you’ll be paid 100% of your primary insurance amount (PIA). If you delay even further, you’ll start to earn delayed retirement credits (DRCs) at the rate of 8% per year or two thirds of 1% per month.

You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to do your Social Security planning. The software allows you enter projected future year earnings, which would enable you to determine what difference, if any, returning to work would have on your future benefit rate. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

When Should I File In Order To Get My Full 32% Of Delayed Credits In My First Check?

I turn 70 in mid February and would like to see and get the full delayed credits of 32% benefit in my first check. When is the optimal time to file? Thanks, Doug

Hi Doug, You’ll get the full 32% rate increase from delayed retirement credits (DRCs) if you start your benefits in February (i.e. the month you turn 70). Your first payment would then be scheduled for March, since Social Security pays benefits a month behind. You can file your application up to four months in advance, so you could apply now if you like. Best, Larry

Would I Be Allowed To File For Spousal Benefits Now And Wait Until FRA To Switch To My Own Benefits?

Hi Larry, I’m 64 and my husband is 70. He has been collected his Social Security retirement benefits since he was 68. I want to file for benefit but I’m not sure whether to file for spousal or my own. My estimated PIA will be slightly lower than my husband’s. Can I apply for spousal benefits now and wait till my FRA, 66 and 4 months, to switch to my own retirement benefits? If allowed, are there any negative consequence? Thanks, Erin

Hi Erin, You wouldn’t be allowed to file for spousal benefits now and wait until later to draw your own benefits. No one can file for just spousal benefits before their FRA. And since you were born after 1/1/1954, you can never do so. Whenever you file for either your own benefits or for spousal benefits, you’ll be deemed to be filing for both benefits. What you would then be paid is essentially the higher of the two benefit amounts, and the rate will be reduced if you start drawing prior to full retirement age (FRA). Best, Larry