Economic Security Planning, Inc.
Today’s column addresses questions about the effect of taking widow(er)’s benefits before delayed retirement benefits, the chances of future Social Security benefits being reduced due to current financial shortfalls and WEP reductions with more than 20 years of substantial covered earnings. 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 Taking My Survivor’s Benefit First Void My Social Security Retirement Benefit?
Hi Larry, My husband has been deceased for twenty years now. I am still working. My monthly retirement is now higher than my monthly survivor’s benefit. I want to apply for my survivor’s benefits and let my own retirement benefit grow. Will I lose my own retirement benefit later if I apply for just my survivor’s benefit alone now? I am age 62 and never remarried. My retirement benefit at 70 will be pretty significantly larger than my survivor’s benefit. Thanks, Sarah
Hi Sarah, I’m sorry for your loss.
You won’t lose your own Social Security retirement benefits if you file for survivor’s benefits. Depending on how much you earn if you’ll still be working, it sounds like your best strategy would almost certainly be to either file for reduced widow’s benefits now or as soon as your earnings will permit at least some benefits to be paid, then switch to your own record at 70; or, file for reduced retirement benefits on your own record now or as soon as your earnings will permit at least some benefits to be paid, then file for unreduced widow’s benefits at your full retirement age (FRA).
Normally, you would want to start out drawing the lower benefit first and then switch to the higher record when it reaches its highest potential rate. My company’s software — Maximize My Social Security or MaxiFi Planner — could sort all of this out for you and help you determine your optimal filing strategy. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry
Do You Have Any Thoughts On The Possibility Of Benefits Being Reduced?
Hi Larry, I am 66 and my wife is 62. We plan to work part time until I am 68 and my wife is 64 for a total yearly income of $55,000. I have been the larger earner. We are both in good health and are planning our finances with the hope of living past 90. We have used your Maxifi program and found it helpful for our planning. Based on your program we were both going to wait until 70 to file for Social Security. I am wondering, however, given the present financial state of Social Security and the talk I hear of reducing benefits in the future, would it be wise for her to start collecting now and for me to file restricted spousal benefit and then collect my retirement benefit at 70? Do you have any thoughts on the possibility of benefits being reduced and how this would affect planning today? Thanks, Paul
Hi Paul, We do not suggest altering your benefit claiming strategy based on concerns about the future financing of the Social Security program. Social Security has been in existence for more than 80 years now, and congress has always managed to fund the program sufficiently to allow all benefits to be paid as promised. There is no reason to think that will change in the foreseeable future, so we would recommend following the guidance you received from using our software. Best, Larry
How Much Will WEP Reduce My Benefit?
Hi Larry, I have worked 47, years, including 35 paying Social Security taxes. I worked 37 at the IRS and then switched to FERS in 1998. I have 21 years of substantial earning years. I turned 62, in 2016. My pension is part CSRS and part Fers:19 CSRS 18 FERS. My estimate is $1,335 a month. If the WEP applies, how much will it reduce my benefit? We were told it would not — is that correct? Thanks, Chris
Hi Chris, If you’re drawing a government pension based on your earnings, and if even part of the earnings on which the pension is based were exempt from Social Security taxes, your Social Security retirement benefits will potentially be subject to reduction caused by the Windfall Elimination Provision (WEP). If you have fewer than 30 years of substantial Social Security covered earnings, you won’t be fully exempt from a WEP reduction but the amount of reduction could be reduced if you have between 20 and 30 years of substantial earnings.
There is a WEP guarantee provision that would limit the WEP reduction in your Social Security benefit rate to no more than 50% of the portion of your government pension that’s based on your non Social Security covered earnings. So for example, if your full government pension amount was $1,200 and half of that amount was based on your non-covered earnings, then the WEP guarantee would limit your reduction to no more than $300 (i.e. 50% of 50% of $1,200).
However, the normal WEP benefit computation formula never reduces a person’s benefit rate by more than roughly $480, so the WEP guarantee is only used when the person’s government pension amount is relatively low. And since you apparently have more than 20 substantial years of Social Security covered earnings, the amount of reduction in your monthly rate would definitely be less than $480.
I can’t give you a precise amount of how much your WEP reduction will be, but our software — Maximize My Social Security or MaxiFi Planner — is fully programmed to handle WEP calculations so you may want to strongly consider using it to do your Social Security planning. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry