Social Security Matters April 17

Ask Rusty - Older Husband and Working Wife Seek Guidance

Dear Rusty: I am 74 years old, retired and receiving Social Security. My wife will be 65 in January of 2025. Our hope was to start paying off some credit card expense by her receiving SS when she turns 65, however it appears there would be a substantial reduction to her benefits. Her work income is $37,500 a year, and she wasn't planning on retiring from work at age 65. Because I am 11 years older, we felt it makes sense to use her Social Security as a means to lower our debt. We have $27,000 in credit card debt, and I don't really want to use my 401(k) funds due to taxes. We pretty much live on my Social Security and pension. Signed: Seeking Suggestions

Dear Seeking: Your wife's full retirement age (FRA) for Social Security purposes is age 67. Because she will not yet have reached her FRA in January 2025 (when she is 65), if she claims SS to start at that time, not only will her monthly amount be reduced, but she will be subject to Social Security's annual earnings test. The earnings test sets a limit for how much can be earned by beneficiaries who claim SS before FRA.

The earnings limit for 2024 is $22,320. The limit for next year is not yet published (it's based on changes to the national wage index) but will be a bit higher - likely about $23,500. Thus, I can't provide the exact impact, but if your wife's 2025 earnings exceed next year's limit, Social Security will take back $1 in benefits for every $2 over the limit (half of the amount over the limit). So, if your wife earns $37,500 per year, that will likely be about $14,000 over the limit and Social Security will take back half of that ($7,000). They "take back" by withholding future benefits, or you can repay them in a lump sum. So, you will have a choice - repay Social Security from your other assets, or they will withhold your wife's SS benefits for the number of months needed to offset her penalty for exceeding the earnings limit. The number of months they will withhold depends on how much is owed and what your wife's monthly SS benefit is. For example, if your wife's age-65 SS benefit is about average ($1,900) and her penalty for exceeding the limit is $7,000, Social Security would withhold your wife's benefit for 4 months to recover the penalty, but she would receive her full benefit for the remaining 8 months of the year.

Unless your wife tells them in advance that she will exceed the limit, Social Security will find out the following year (after you file your income taxes). But, in any case, your wife cannot avoid the annual earnings test for working before reaching her full retirement age. The earnings test goes away when your wife reaches her FRA of 67. Until that time, if she continues working she will have a choice to have her benefits withheld for a portion of the year, or simply repay Social Security in a lump sum (in which case her benefits would continue uninterrupted).

FYI, there is a silver lining in this, because if your wife has benefits withheld because she exceeds the earnings limit before her FRA, after she reaches her full retirement age Social Security will give her time credit for the months when benefits were withheld, which will result in her monthly Social Security payment amount increasing somewhat at her full retirement age. Thus, over time, your wife may recover the benefits which were withheld for exceeding the annual earnings limit. But to get 100% of the benefit she's earned from a lifetime of working, and be exempt from Social Security's earnings limit, she would need to wait until she reaches her FRA to claim.

Ask Rusty - Can I Claim Social Security and Still Work?

Dear Rusty: I will be turning 63 soon. Can I apply for Social Security and continue to work? Would I be limited to how many hours or how much I could make? I know my monthly SS amount would be cut by 30%, or somewhere around there, but how would working affect me? I was trying to read up on this, but the $1 and $2 thing confused me. I have an offer to take a work-at-home position and need to decide soon, but it is a cut in income. The cut would be okay if I could draw my Social Security too. Signed: Wanting Work at Home

Dear Wanting: If you claim your Social Security to start in the month you turn 63, you'll be claiming 4 years before your full retirement age (FRA) of 67, which means your monthly benefit at 63 will be about 25% less than it would be if you claimed SS at age 67. And if you are working before your FRA, you'll be subject to Social Security's "earnings test."

The 2024 earnings limit for those collecting early Social Security benefits is $22,320 (this limit changes annually). If your annual earnings exceed the limit, Social Security will assess a penalty of $1 for every $2 you are over the limit. They will recover that penalty amount by withholding future benefits until they recover what you owe. If your work earnings are under the annual limit, you will get all your monthly SS benefits. But if you exceed the limit, they will find that out after you submit your income tax return (the following year) and issue you an overpayment notice, telling you how much you owe for exceeding the limit last year. They will then withhold your benefits until they get back what you owe, or you can repay them in a lump sum. To avoid the overpayment notice, it is best to inform Social Security in advance that you will exceed the annual earnings limit, and they will simply withhold your monthly SS benefits during the year for enough months to avoid overpaying you.

So, what you should do depends largely on how much your earnings from your new work-at-home position will be. If your earnings are below the annual limit, no penalty will be assessed. If you only exceed the annual limit by a little bit, then you can still work and earn and simply repay them what is owed for exceeding the limit (or have your SS benefit temporarily withheld). If you only exceed the earnings limit by a little, you'll still get benefits for most months of the year. But if you significantly exceed the annual earnings limit, you could even be ineligible to receive SS benefits until you either earn less or reach your full retirement age (the earnings limit goes away at your FRA).

So, what you should do depends on what "a cut in income" means in terms of your expected annual earnings amount. If your total annual earnings will be under the annual limit, your SS benefit won't be affected. If you only exceed the limit by a little bit, then you will get SS benefits for most months of the year. But if your annual earnings are significantly over each year's annual earnings limit, then you won't get SS benefits for most months of the year and may even be temporarily ineligible to receive benefits.

t now will have no effect on the survivor benefit she will get as your future widow.