Q: I have not reached my full retirement age; I am five years away. However, I do have 35 years of payments into Social Security. I have received an estimate of my monthly benefit ($2,600). If I stop working now, will that decrease the benefits I will receive from Social Security when I reach my full retirement?
A: Your top 35 years’ earnings, adjusted for inflation, are used to compute your Social Security benefit. If you continue to work, the new earnings could increase your future Social Security, for two reasons.
Firstly, these might be among your highest-earning years, even accounting for inflation, and could replace earlier, lower years in the computation. Secondly, the inflation factor used doesn’t completely make past earnings comparable to recent earnings, making recent earnings more “powerful” in the computation.
Moreover, the estimates at www.ssa.gov/myaccount assume that work continues at the most recent rate. Accordingly, if you use these estimates, stopping work now would mean that the estimator is overstating future benefits. If you discontinue working now, when you do reach your full retirement age, your benefits will be lower than the benefits computed from the estimate you received.
You can use a free Social Security Administration site to run “what-if” computations to compare Social Security payments with and without future work and decide for yourself whether more work is worth it. The site is www.ssa.gov/benefits/retirement/estimator.html.
You can run successive computations with different scenarios with different values for future earnings amounts and retirement dates.
The bottom line is that although Social Security uses the best 35 years to compute your benefit at your full retirement age, if you do stop working now, your benefits at full retirement age will be less than the estimate you received.
Q: My husband passed away. He was vested in his retirement plan, and I was named as the beneficiary. When I asked the company he worked for about my retirement benefits, they indicated to me that they were much less than I had expected. My husband had indicated that he was entitled to $1,100 a month. His company indicated that currently I would receive only $150 a month. They indicated that he would have to have reached age 65 in order to receive $1,100 because the benefits are now computed differently from when he was first employed. Is that legal? How can I determine if what they are telling me is correct?
A: I recommend that you touch base with the Pension Rights Center. Specifically, go to www.pensionrights.org on the internet to determine the best contact in your geographic area. They should be able to investigate for you and determine what you are entitled to.
Q: I am 69, and I plan to file for my Social Security work benefit when I am 70. Currently, I am receiving spousal benefits based on my wife’s work record. My work benefit will be much higher than what hers is. What action should she take when I reach 70? Is she entitled to spousal benefits then? How will they be computed? She will be 64 years old when I reach age 70. What action should she take when she reaches her full retirement age? What will be her survivor benefits if I die before her?
A: When you reach 70, your wife will not have reached her full retirement age. Therefore, she will not be entitled to 50% of your benefits at that time. Her spousal benefits will be based on your full retirement age benefit, not the benefit you are entitled to at age 70. If she waits until she reaches her full retirement age, she will then be eligible for 50% of your full retirement age benefit with no penalty. I recommend that after you reach 70 and apply for your Social Security benefit, your wife can then determine from Social Security what her spousal benefit would be at that point, and she can compare that amount to what it would be if she waits until her full retirement age. She would not be entitled to both the Social Security benefit she is receiving and spousal benefit. She would be entitled to whichever amount is higher.
Regarding survivor benefits, if you predecease her, she would be entitled to 100% of your Social Security benefit that you receive at age 70.
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Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.
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