Economic Security Planning, Inc.
Today’s column addresses questions about recouping benefits lost to the earnings test, information from Social Security about private pensions, how quarters and credits are counted, qualifying for lower Medicare premiums and being grandfathered out of the WEP. 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.
See more Ask Larry answers here.
Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.
Will I Recoup Benefits Lost To Social Security’s Earnings Test?
Hi Larry, I am the higher earner and my spouse was the lower. If I draw survivor benefits at age 62 which will be heavily reduced due to continuing to work, will any of that money ever be regained when I switch to my own higher retirement benefit at my FRA? Or, due to the fact that I am switching to my own earnings record, are all the dollars lost due to the earnings test forever gone? I was born in 1958. Thanks, Jared
Hi Jared, Benefits withheld prior to a person’s full retirement age (FRA) as a result of the Social Security earnings test are never really returned to the affected person. The only way a person can recoup the lost benefits is from the resulting adjustment in their benefit rate that occurs when they reach FRA. That Adjustment of the Reduction Factor only applies, however, to the type of benefit they were drawing when the benefits were withheld.
For example, say Jane files this year at 62 for widow’s benefits. Jane’s unreduced widow’s rate if she filed at FRA would be $2,000, but her reduced rate at 62 is $1,610. However, Jane continues to work and because of her earnings she can only be paid half of her benefits between 62 and FRA due to the earnings test. At FRA, Jane’s widow’s rate would then be adjusted to $1,805 to remove half of the reduction for age that was originally applied.
In the above example, if Jane lives long enough and continues drawing widow’s benefits she could more than recoup the benefits she lost to the earnings test as a result of her increased widow’s rate. However, if Jane switches to drawing a higher retirement benefit rate based on her own work record, her widow’s benefits would stop. If that happens at FRA, the adjustment in Jane’s widow’s rate that would have occurred at FRA would be moot. But if Jane waited until 70 to switch to her own retirement benefit, she would at least recoup part of the benefits lost to the earnings test during the years between her FRA and 70.
Regardless though, if you are potentially eligible for both Social Security retirement and widow(er)’s benefits, your best filing strategy is almost certainly to file for the lower benefit as soon as your earnings would permit payment of at least some benefits and then switch to the higher benefit when it reaches it’s highest possible rate. My company’s software — Maximize My Social Security or MaxiFi Planner — could help sort all of this out for you so that you can determine the best possible way to maximize your benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Why Would Social Security Send Me Reports About My Former Employers’ Pension Plans?
Hi Larry, One month ago, I received three reports from Social Security regarding the dollar value of my former (private) employer’s pension plans. The contacts for those reports are the pension program administrators. Two of the reports had dollar figures that were several years old. I contacted the pension administrator and he was flummoxed by the reported numbers. I contacted Social Security and they had no record of these reports and did not understand why I was receiving them.
Why am I getting pension reports that have nothing to do with social security? I am waiting to file for as long as possible. We keep tabs on our pension plans and have a financial planner. Do have any insights about why we would get non-Social Security pension reports? It seems not only redundant but the numbers are also misleading since they do not match our pension dollar figures. Thanks, Mariah
Hi Mariah, It sounds like the reports you’ve received are a result of the Employee Retirement Income Security Act of 1974 (ERISA). Notices sent by Social Security as a result of ERISA are informational, with the intent of letting individuals know of their possible eligibility for benefits from various employer pension plans. Social Security doesn’t actually have access to sufficient information to be able to determine whether or not these individuals actually meet the requirements for such pensions though, or how much they could potentially receive. These notices sent as a result of ERISA are informational only. So assuming that’s what you received and if you’re already aware of your rights under the pension plan referred to in the notices, you can probably disregard the notices. Best, Larry
Why Would Social Security Say That I Qualify And Then Say I Don’t?
Hi Larry, I had income from 1977 to 1986 and then again from 2013 to 2017. In October 2018, my Social Security statement said I had earned enough credits to qualify for benefits. Now in 2020, Social Security says I only have 39 quarters credited and don’t qualify for benefits. I am no longer working. What happens now? I’m 62. I’m not sure how many credits I earned in 1977 from my income of $768. Why would they say I qualify and then say I don’t? Is this something I can change? Thanks, Arthur
Hi Arthur, The conflicting information you received from Social Security is in part related to your question about the number of Social Security credits (i.e. quarters of coverage, or QC) you earned with earnings of $768 in 1977. The bottom line is that you may have earned as few as one QC or as many as four QCs in 1977, assuming that the $768 represents Social Security covered wages and not self-employment earnings. That’s because of the way that QCs were earned prior to 1978.
Before 1978, you had to earn at least $50 of Social Security covered wages in an actual calendar quarter (i.e. January-March, April-June, July-September, or October-December) in order to be credited with a QC. Thus, if you only had earnings in a single calendar quarter of a year you couldn’t earn more than one QC no matter how much you earned in that calendar quarter. Starting in 1978 however, the number of QCs credited for a calendar year is based on total calendar year earnings, regardless of the number of calendar quarters in which a person worked. So starting in 1978, a person could work one day in a year and earn up to four QCs, provided that their earnings were high enough.
By the way, the crediting of QCs for self-employment earnings was always done based on calendar year earnings regardless of when the work was done, even before 1978. So if the $768 you earned in 1977 was self-employment earnings rather than wages, you’d be credited with four QCs that year.
Unfortunately, the data used to produce the Social Security statements that are sent to people is not detailed enough to identify the number of QCs earned prior to 1978. I think that’s because the statements are produced by private contractors who only receive limited earnings information from Social Security. In any case, Social Security does have your full earnings record in their computer system, including a breakdown of your QCs earned in years prior to 1978. So you should be able to get an accurate count of your total QCs by contacting Social Security and speaking with one of their employees. Best, Larry
Is There Any Way I Could Qualify For Lower Medicare Premiums?
Hi Larry, My husband passed away 2017 at 73. We both were getting Social Security retirement benefits. He was still working when he died. I got Social Security widow’s benefits after his death. My Medicare part B and D premium keeps on going up every year because of IRMAA based on income two years ago. I will get $1 for June and much less Social Security from July onwards. The same thing happened last year. We both worked longer hours and he worked until 73. It hurts me to pay very high Part B and Part D premium about $470/pm and get very much less Social Security. Thanks, Kelly
Hi Kelly, I’m sorry for your loss. If your income was higher than normal two years ago due to income resulting from your husband’s death, Social Security may be able to use a more recent tax return to base your Medicare premiums on. I don’t know if that will reduce your premiums, but it may be something you’ll want to look into. Best, Larry
Shouldn’t I Be Grandfathered From A Benefit Rate Reduction?
Hi Larry, When the Social Security law was changed by Reagan, we were told that the people who started prior to a certain date would be grandfathered in, meaning the new law would not affect us, city of Los Angeles Department of Water and Power workers, if we should chose to work after retiring from the city. I retired in 1999 and worked long enough to qualify for Social Security benefits. When I applied for Social Security, I was told that my monthly benefit of about $900 would be lowered to $200 due to my working for the LADWP. When I tried to explain the situation, I was told “the law is the law” and the person wouldn’t follow up on it. What can I do? Thanks, Stan
Hi Stan, There are various “grandfather” provisions in the Social Security Act as amended, but what you’re apparently referring to is the Windfall Elimination Provision (WEP). The WEP provision can cause a person’s Social Security retirement or disability benefit rate to be reduced if they also receive a pension based on their work and earnings that were exempt from Social Security taxes.
The WEP provision went into effect on 1/1/1986, and in order to be exempt, or grandfathered, from the provision you must have been eligible for either your Social Security benefit or your non-covered pension prior to 1/1/1986. “Eligible for” is defined in the provision as meeting all requirements for the pension except for stopping work or filing an application. In other words, you would only be grandfathered if you could have retired and started drawing either your non-covered pension or your Social Security benefit prior to 1/1/1986.
I have no way of knowing whether or not you meet an exception to the WEP provision, but if you believe that you do, you should probably consider filing an appeal of Social Security’s determination to reduce your benefit rate. Best, Larry