Question:
I am planning to retire on August 1, 2008. I am 64 yrs old and not planning to collect social security benefits for another 2 yrs. If I get paid in lieu of my unused vacation time, would it affect my social security payments?
Jitendre from New Jersey
Answer:
Unused vacation time is counted as earnings, but there are limits on this for purposes of the “retirement test.” Any payments made on account of retirement are counted as earnings in the month last worked, unless they are earned in a prior year, in which case that portion of the vacation pay attributable to the prior year does not count in the current year’s earnings for “retirement test” purposes. If you don’t plan to apply for benefits until 2010, the 2008 earnings will have no effect for the “retirement test” in 2010. If the unused vacation time is paid out to you after you retire this year, and you have accumulated so much time that it extends into 2010, it still doesn’t affect 2010 benefits.
In fact, no matter how high your 2008 earnings, you could collect reduced retirement benefits for August through December. Because your earnings in these months will be under the monthly limit of $1,130 applicable to you this year, benefits for these months cannot be withheld. These are called “non-service” months. I discuss this in Chapter 8, Social Security Benefits Handbook. Click on the link and scroll down to Section 804, The Monthly Earnings Test.
But Jitendre, your plan to wait till age 66 to collect benefits even though you are retiring now may not be in your best interest. The only reason to forego benefits now would be to get an unreduced benefit at age 66. As I have discussed in an article which was published on the Basil & Spice blog, this may not pay off for you. You may read my article that was posted on April 20, 2008. Click the title "Social Security Benefits, Now Or Later?"
You may want to reconsider passing up two years of benefits, or at least figuring out how long it will take to recover them after 66.
Friday, July 4, 2008
What Happens If An SSI Disabled Person Marries?
Question:
Could you tell me what happens to SSI benefits if the disabled person marries? Do the benefits become affected if one marries someone who is not on SSI, and is working full time?
Mara from Washington State
Answer:
To answer your second question first: yes. SSI payments are affected by the income and resources of an ineligible spouse. This is because such payments are based on need rather than your earnings record, as in the case of regular social security disability benefits (SSD benefits).
So, effective with the first day of the month you marry, your husband’s income and assets will be deemed to be yours. Depending on the amount of the earnings and assets, you may become ineligible for SSI, or your monthly payment amount may be reduced.
As an SSI recipient you are required by law to report any change in your marital status.
Contrariwise, regular SSD benefits, based on your earning's record, are not affected by your husband’s income at all because they are not based on need. Many people confuse SSI disability payments with SSD benefits, but they are very different, one being a federal welfare program, the other a social insurance program paid for by the worker’s prior payroll taxes. Some people receive payments under both programs, if the amount of the SSD is smaller than the SSI payment. In such a case only the SSI payment is affected.
Could you tell me what happens to SSI benefits if the disabled person marries? Do the benefits become affected if one marries someone who is not on SSI, and is working full time?
Mara from Washington State
Answer:
To answer your second question first: yes. SSI payments are affected by the income and resources of an ineligible spouse. This is because such payments are based on need rather than your earnings record, as in the case of regular social security disability benefits (SSD benefits).
So, effective with the first day of the month you marry, your husband’s income and assets will be deemed to be yours. Depending on the amount of the earnings and assets, you may become ineligible for SSI, or your monthly payment amount may be reduced.
As an SSI recipient you are required by law to report any change in your marital status.
Contrariwise, regular SSD benefits, based on your earning's record, are not affected by your husband’s income at all because they are not based on need. Many people confuse SSI disability payments with SSD benefits, but they are very different, one being a federal welfare program, the other a social insurance program paid for by the worker’s prior payroll taxes. Some people receive payments under both programs, if the amount of the SSD is smaller than the SSI payment. In such a case only the SSI payment is affected.
Tuesday, July 1, 2008
Deferring Benefits To Get Delayed Retirement Credits at 70
Question:
On the PBS Nightly Business Report show on Memorial Day, they did a "Retirement Special", as markets were closed.
They briefly passed by on a retiree (believe close to 70) that decided to return what benefits he had received, to restart his SS LATER, at a higher amount..
We have your 8th Edition, don't believe I ran into what rules exist, like how long one has to do this, etc..
Thanks,
Roland
PS: My Mom, now 92 was a SS Claims Rep, and I was a Fellow of the Society of Actuaries in my younger days, and Enrolled Actuary, but have moved on into retirement investment management business.
My wife turned 62 May 31st, so that's why we have the book!
Roland from Illinois
Answer
A beneficiary can withdraw an application. All benefits, including those of dependents, must be returned. I discuss the process in Section 414 of the Social Security Benefits Handbook. I recently did any article about deferring benefits till age 70. The reason to do so, or to withdraw a previous application and return benefits, as in the example you provide, is to get the advantage of the Delayed Retirement Credits, which now come to 32%.
Look for the article which will be posted soon at Basil and Spice, a very helpful blog for improving your life. Click the My Article on Basil and Spice in the resources box at the top right.
I posed a question to financial types in that article. You seem to be a likely candidate based on your background and current position. Can one buy a lifetime annuity at age 70 for $98,000 (the benefits received from age 66 to age 70 at the approximate current maximum rate) that will pay more than $640 per month plus annual COLA increase? This would be the approximate gain from the maximum Delayed Retirement Credits for deferring benefits till age 72. So is it worth it?
P.S. God bless your mom! Maybe working for SSA had some long-term benefits.
On the PBS Nightly Business Report show on Memorial Day, they did a "Retirement Special", as markets were closed.
They briefly passed by on a retiree (believe close to 70) that decided to return what benefits he had received, to restart his SS LATER, at a higher amount..
We have your 8th Edition, don't believe I ran into what rules exist, like how long one has to do this, etc..
Thanks,
Roland
PS: My Mom, now 92 was a SS Claims Rep, and I was a Fellow of the Society of Actuaries in my younger days, and Enrolled Actuary, but have moved on into retirement investment management business.
My wife turned 62 May 31st, so that's why we have the book!
Roland from Illinois
Answer
A beneficiary can withdraw an application. All benefits, including those of dependents, must be returned. I discuss the process in Section 414 of the Social Security Benefits Handbook. I recently did any article about deferring benefits till age 70. The reason to do so, or to withdraw a previous application and return benefits, as in the example you provide, is to get the advantage of the Delayed Retirement Credits, which now come to 32%.
Look for the article which will be posted soon at Basil and Spice, a very helpful blog for improving your life. Click the My Article on Basil and Spice in the resources box at the top right.
I posed a question to financial types in that article. You seem to be a likely candidate based on your background and current position. Can one buy a lifetime annuity at age 70 for $98,000 (the benefits received from age 66 to age 70 at the approximate current maximum rate) that will pay more than $640 per month plus annual COLA increase? This would be the approximate gain from the maximum Delayed Retirement Credits for deferring benefits till age 72. So is it worth it?
P.S. God bless your mom! Maybe working for SSA had some long-term benefits.
Wife's Benefits- Husband's Earnings
Question:
My wife will turn 62 in September. I am 62 but am also still working. My income level is in the low 6 digits, hers is zero. I have been unable to find any references to the impact of my income on her benefit. We generally file 1040 as MFJ. Is my wife's benefit impacted by my income and if so what publication would you recommend I review for details. Thank you.
John from South Carolina
Answer- Your wife cannot collect as your spouse on your account if you don’t also apply for benefits. But if your wife has worked the required 40 quarters and is eligible on her own account, your income will not impact your wife’s benefit. However keep your eye on that taxman (“’Cause I’m the taxman, Oh Oh the taxman” as George Harrison put it). The benefits may be subject to taxation as per the usual rules for taxation of SS benefits. When your joint income exceeds $32,000 (this is the limit for married filing a joint return), you pay tax on 50% of the excess income over $32,000 up to $44,000, then 85% of the excess income over $44,000.
And hey John, keep in mind the “non-service” month provision. If your earnings are under the monthly limit for any calendar month you’re over 62, you can get the monthly benefit for any such month. It doesn’t matter whether or not you are retired, only what your earnings are for that particular month or months (including sick and vacation pay).
When you become eligible for benefits, your wife may be entitled to some additional benefits as a spouse on your account, but only if her primary insurance amount (her benefit before the age reduction) is less than one-half of yours. If so, then she can receive the difference up to that one-half amount. But if she is under full retirement age when she becomes entitled to that, the wife’s portion will be reduced for age too, at the wife’s reduction rate, which is a bit greater than the retirement reduction.
My wife will turn 62 in September. I am 62 but am also still working. My income level is in the low 6 digits, hers is zero. I have been unable to find any references to the impact of my income on her benefit. We generally file 1040 as MFJ. Is my wife's benefit impacted by my income and if so what publication would you recommend I review for details. Thank you.
John from South Carolina
Answer- Your wife cannot collect as your spouse on your account if you don’t also apply for benefits. But if your wife has worked the required 40 quarters and is eligible on her own account, your income will not impact your wife’s benefit. However keep your eye on that taxman (“’Cause I’m the taxman, Oh Oh the taxman” as George Harrison put it). The benefits may be subject to taxation as per the usual rules for taxation of SS benefits. When your joint income exceeds $32,000 (this is the limit for married filing a joint return), you pay tax on 50% of the excess income over $32,000 up to $44,000, then 85% of the excess income over $44,000.
And hey John, keep in mind the “non-service” month provision. If your earnings are under the monthly limit for any calendar month you’re over 62, you can get the monthly benefit for any such month. It doesn’t matter whether or not you are retired, only what your earnings are for that particular month or months (including sick and vacation pay).
When you become eligible for benefits, your wife may be entitled to some additional benefits as a spouse on your account, but only if her primary insurance amount (her benefit before the age reduction) is less than one-half of yours. If so, then she can receive the difference up to that one-half amount. But if she is under full retirement age when she becomes entitled to that, the wife’s portion will be reduced for age too, at the wife’s reduction rate, which is a bit greater than the retirement reduction.
Saturday, May 10, 2008
Trouble Understanding
Stan,
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
Tony,
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.
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
Tony,
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
QUESTION:
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.
Regards,
Tony from Tennessee
ANSWER:
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.
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.
Regards,
Tony from Tennessee
ANSWER:
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
QUESTION:
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
ANSWER:
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.
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
ANSWER:
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.
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