We have received some interesting reader questions recently. The first concerns whether cost-of-living adjustments or COLAs are applied, while the submission of social security application is delayed:
I am 68 and receive survivor benefits from my deceased husband. I wait until I am 70 years old to take my own benefits. My question is, will I receive the 5.9% COLA from last year, plus whatever the COLA will be for 2023, plus the 32% to wait until I turn 70? If not, then does it not make sense to start receiving benefits before the end of this year, as the estimated COLA for 2023 is 8.9%?
First of all, the survivor benefit you are currently receiving will be increased by what the COLA is for 2023.
In addition, your pension benefit will have COLA included in it when you apply for it, even if you wait until you are 70 years old to apply. The COLA is applied to each year after your 62-year benefit calculation was made.
So you will not miss 2023 COLA by delaying after the date the COLA is used. Filing before the end of the year will only result in missing out on the annual delay factor of 8% (⅔ of 1% per month) for the remaining time until you reach 70 years of age.
The second question concerns a situation where the person is below full retirement age (FRA) and earns more than the annual earnings limit, so that part of her survivor’s benefit is withheld.
I applied for my husband’s benefits at the age of 62. $ 11,795 will be withheld from January to July.
Question 1: Will this amount be reimbursed later?
Question 2: If I reduce my income, will Social Security repeat the amount and time to release the funds? If the amount is $ 19,500, what is the total amount I need to make to avoid a recalculation of the benefit amount, and does it include other sources of income (401 (k), investments)?
Answer your numbered questions first:
Question 1: First of all, I assume that by “male benefits” you are referring to a survivor’s benefit rather than a spouse’s benefit (because the calculations will be different if it is a spouse’s benefit). This is primarily because the amounts you refer seem more in line with a survivor’s benefit than a spouse’s benefit.
When you reach full retirement age (OFF), you will receive credit for months of withheld benefits. So if your benefits are withheld for seven months each year between your age of 62 and 66 (67 is your OFF year, there is a more liberal earnings limit), that means up to 35 months can be added to your record.
Your survivor’s benefit will be recalculated as if you were actually applying for unemployment benefits at the age of 64 years and 11 months (35 months later than 62 years), which would have the effect of increasing your benefit by around 14.9%. You will then receive this increased benefit for the rest of your life, or until another factor changes (such as a subsequent marriage / death of a spouse or ex-spouse).
Note: The calculation of the potential increase makes several assumptions that were not clarified in the original message, so your results may vary, do not take that number as gospel.
Question 2: Reducing your income this year does not result in a recalculation of this year’s benefits. From next year (provided you have reduced your income below the threshold this year), however, your benefits will no longer be withheld. If you reduce your income to any amount below the current level (which I estimate from your message to be around $ 43,150), then there will potentially be a smaller amount of withheld benefits (fewer months) for the following year . In addition, the earnings limit will also have increased next year.
Finally, I believe that I have answered the last (unnumbered) question in part in the answer to question 2. The remaining part to be answered is whether income from sources such as 401 (k) or investments is recognized in the earnings limit. This is the good news: only earnings from employment (or self-employment) count in the annual earnings test. Employment income is included, even though this income is not subject to social security taxation. However, pension income, such as 401 (k) payments, and investment income, savings interest, and other non-employment income are not counted.