Question: I am 66 years old, and I get my own small Social Security retirement benefit. Because it is so small, I get some additional spousal benefits off my husband’s record. I am still working. I just got a letter from the Social Security Administration telling me that my retirement benefit is being increased by $20 per month because of my most recent earnings. But at the same time, the letter said my spousal benefit is being reduced by $20. I don’t get this. Why is the SSA giving me extra money but then turning around and asking for it back?
Answer: Wow! It’s as if the government slipped a $20 bill into your right pocket and then sneaked its hand into your left pocket and took out 20 bucks! What’s going on? It just doesn’t seem fair, does it? But I think that when you read my explanation, it will make sense to you.
You said you are getting Social Security benefits off two accounts — your own and your husband’s. You didn’t give me dollar amounts, and it will be easier to explain what is going on by using an example, so I will make them up. Let’s say you are getting $300 per month from your own record. And let’s further say you are due $550 per month in spousal benefits.
As a general principle, when you are due two benefits, you get the one that pays the higher rate. So normally, you would just get the $550 spousal benefit on your husband’s account.
But there is a rule that says that if you are due anything on your own account, it has to be paid to you first. Then the SSA makes up the difference with whatever extra you are due as a spouse.
So using my example, the SSA would pay you your $300-per-month retirement benefit, and then you would get an extra $250 from your husband to take you up to the $550 level.
You said that you are still working and that your extra earnings boosted your own retirement benefit by $20. So, back to my example, that means your own monthly rate went up to $320.
But your extra earnings had nothing to do with your husband’s Social Security check or with your share of that check. So you are still due $550 in spousal benefits. That means the SSA now pays you your own $320 first and then gives you an extra $230 in spousal benefits rather than the $250 spousal rate you were due when your own benefit was just $300, to take you up to the same $550 level you were due with or without your additional retirement benefits.
Q: I’m 68 years old. I started collecting Social Security when I was 66, but I’m still working. Admittedly, I’m not making as much as I was just a few years ago, but I am making much more than I did when I was younger. My earnings last year were about $40,000. Shouldn’t my current earnings increase my Social Security check? And if not, do I have to continue having Social Security taxes withheld from my paychecks?
A: I’ll answer your second question first because it’s easier. If you are working, whether you are 18 years old or 68 years old or, for that matter, even 108 years old, you will always have Social Security taxes withheld from your earnings.
But then the issue is this: Will those extra taxes you are paying into the system increase your Social Security retirement benefit? And the answer is “maybe.” You would get an increase if your current yearly earnings are more than the lowest year used in your original benefit computation. If they are, the new, higher year will be substituted for that low year, and your benefit will be refigured.
But here is the kicker: Those earnings from past years used in your benefit computation were adjusted for inflation. The amount of the inflation indexing factor depends on your year of birth and varies from one year to the next.
For example, it sounds as if you were born in 1950. And let’s say the lowest year of earnings used in your retirement computation was 1970, when you made, say, $7,000. The indexing factor for 1970 earnings for people born in 1950 is 6.74. That means that when the SSA figured your retirement benefit, it used $47,180 ($7,000 times 6.74) instead of just $7,000 as your 1970 earnings.
You said you made $40,000 last year. Using my example of $7,000 as your lowest yearly earnings, you are right that your current earnings greatly exceed that level. But the more important question is this: Do they exceed the inflation-adjusted amount that was used in your retirement computation? Back to my example, $40,000 is less than $47,180. So that means your benefit will not be refigured because you are currently making less than the lowest inflation-indexed yearly earnings in your benefit computation.
Now let’s turn the tables a bit. If you were currently making $60,000 per year, that would higher than the amount in the inflation-adjusted low year in your original benefit computation. Then you would be due an increase. And when you are due an increase, there are two things you should know. First, the increase is automatically calculated by the Social Security Administration. There is nothing you need to do. Second, the amount of the increase depends on how much higher your current earnings are than your lowest year of past earnings. But you can generally count on about an extra $10 to $20 per month in your retirement check.
One more point for other readers. Because there are thousands of inflation factors — depending on your date of birth and the year in question — I simply cannot list them here. The SSA produces a pamphlet for each year of birth (for near-term retirees), listing these inflation factors. If you’re interested, go to https://www.ssa.gov/pubs and search for “Your Retirement Benefit: How It Is Figured.” Click on PDF, and then click on your birth year.
