Today’s Social Security column addresses questions about how Social Security’s spouse benefits are calculated, whether it is necessary to file in January to get a given year’s COLA, and what effects non-paying benefit rates may have. Larry Kotlikoff is a professor of economics at Boston University and the founder and president of Economic Security Planning, Inc.
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How Will Social Security Calculate My Wife’s Spouse Benefit Rate?
Hi Larry, My wife of 25 years was born in the beginning of 1955. She began receiving benefits at her FRA, $ 1,150 a month. I was born in late 1955. My estimated full retirement benefit is $ 2,920. I do not intend to take my benefits until I am 70. My estimated benefits at 70 are $ 3,820.
I understand that my wife’s spouse benefits will be half $ 2,920 or $ 1,460. How does it work. When I pull at 70, will my wife only be eligible for $ 1,460, or will she also be able to take advantage of the years with COLAs (provided COLAs occur)? Thanks, Jack
Hi Jack, When you start deducting your benefits, your wife will be entitled to a benefit rate equal to 50% of your primary insurance amount (PIA). A person’s PIA is equal to their social security pension benefit if they start deducting their benefits at full retirement age (OFF).
What will actually happen is that your wife will continue to receive her own benefit rate plus an excess spouse benefit equal to the difference between her PIA and 50% of your PIA. And since your wife started collecting her benefits from FRA, her total amount including her excess spouse benefit will then add up to 50% of your PIA.
Both your PIA and your wife’s PIA will be credited with any increases in cost of living (COLA) that occur between now and when you start deducting your benefits, so the bottom line is that your wife’s total monthly benefit rate should add up to 50% of what than your PIA is when you start drawing. Best, Larry
Is there any reason not to file in January in a given year?
Hi Larry, Is there any reason not to have January as your start date for starting social benefits? It starts in January, would you be eligible for the increase that most people get starting at the beginning of each year? They can
Hi Dean, There is inherently nothing wrong with starting benefits with effect from January, but in many cases it is not the best solution. If you start your payments in January, you will receive the cost of living benefit (COLA) that social security recipients receive for most years, but not because you chose to start your benefits in January.
All COLA social security increases that occur after a person reaches the age of 62 are credited to the person’s social security pension benefit rate, whether or not they receive their benefits. In other words, you do not have to start your benefits in January to receive the COLA increases you are entitled to.
The best month and the best year to start benefits depends on many different variables, and each person’s set of circumstances is different. You may want to consider using my company’s software – Maximize my social security or MaxiFi Planner – to ensure that your household receives the highest lifetime benefits. Social security calculators provided by other companies or non-profit organizations can make appropriate suggestions if they were built with extreme care. Best, Larry
Does failure to file tax affect my amount of benefits?
Hans Larry, if I owe residual tax, how will it affect my social benefits or will it? Thanks, Jill
Hi Jill, Failure to file a tax return will not affect your Social Security benefit as long as you have still paid Social Security tax on your earnings. Employers withhold and pay social security taxes for covered employees, so workers get credit for this income even if they do not pay income tax.
However, the self-employed pay their social security taxes in the form of self-employed taxes, which are reported and paid when they file their tax return. Failure to file tax returns can adversely affect a person’s pension or disability benefit.
Furthermore, if and when a person claims social security benefits, the IRS may impose a tax on the person’s benefits to collect taxes due. Best, Larry