Saturday, May 10, 2008

Trouble Understanding


I salute you for understanding this stuff. Thanks for the response. I'm still having some trouble understanding it, but I know if I read it enough times it has got to click. Sometimes I'm a little slow on the uptake.

Tony from Tennessee


Thanks. I know how you feel. It always takes time for new and complex concepts to sink in. Once you get the big picture and the basic concepts down, it all comes together. In your question you spoke about getting the "penalty" back. The "penalty" is actually 2 things: the reduction factor used to calculate the benefit amount for months before Full Retirement Age (FRA), and then the witholding of benefits required to satisfy the annual earnings test applicable to those under FRA. The witheld benefits are not paid back, but the reduction factor is re-adjusted at FRA.

Hope this helps a bit. You are not alone in having some difficulty in grasping all this right away. Feel free to send follow up questions if something is unclear.

Tuesday, May 6, 2008

Adjustment of Reduction Factors at Full Retirement Age

Enjoyed your online book very much. Talk about easy to read!
I will turn 62 at year end, and plan on continuing work and applying for benifits. Based on my expected income, I will probably be penalized approximatly $8900 annually. I don't know where I got this idea, but somewhere I thought I read that this penalty eventually comes back to the recipent after full retirement age is reached (66 in my case). Could not find a reference to this in your book. Am I correct in this?
Thanks in advance, and thanks for the excellent work in this book.
Tony from Tennessee


Thanks for the compliment, flattery gets you everywhere!

Sorry, but the "penalty" you refer to does not come back to you. That's the bad news. The good news (and what you were probably thinking about) is that the number of reduction months used to figure your benefit amount before Full Retirement Age gets readjusted when you reach 66 to exclude any months which were used to withold benefits for the "penalty." They call this an "ARF" (one of the more memorable acronyms).

The benefit amount before Full Retirement Age is reduced by a fraction for each month under 66 as of when you first become entitled. The legal reduction factor is 5/9 of 1% of the primary insurance amount for each month of the first 36 months and for each month more than 36 months the factor is 5/12 of 1 percent.

If you start benefits at 62, that would be 48 months of reduction. That comes to 25% off the full benefit. If you have excess earnings that require witholding of some monthly benefits (the "penalty" you referred to), then the months come out of the reduction at age 66. So for example if at age 66 it turns out that you only received 36 full monthly benefits, then the reduction factor is readjusted to only a 20% reduction, for all benefits beginning with the month you reach Full Retirement Age. This is done automatically without you having to make any application for this readjustment.

Friday, May 2, 2008

Voluntary Suspension & Spouse Benefits

If the worker properly applies for Social Security benefits but "files and suspends" to age 70, the worker is therefore nevertheless "entitled." Can the spouse (at her FRE or at any other time before the worker turns 70) then file for a spousal benefit, even though the worker is not at that time receiving cash benefits? Assume the spouse has not applied for benefits based on her own record, and that if she did the benefit would be low, say 20% of the worker's benefit? Thanks.

Sam from DC

A spouse can receive benefits on the worker's account even if the worker suspends benefits to collect the Delayed Retirement Credits at age 70. Under this suspension procedure, only the worker's benefits can be suspended, not any of the beneficiaries on the account. There is no advantage for them anyway, because it is only if the worker's benefits are not paid that the Delayed Retirement Credit applies. If the spouse's benefits are only 20% of the worker's, then the benefit payment will never be greater than the spouse's benefit rate of 50%, or even at the maximum reduced spouse rate (35%) if she is under Full Retirement Age.