Sorting Out Who Gets What in Benefits
Question: Thanks for your recent column on Social Security benefits. Maybe you can answer a question for me:
My husband receives $1,199 each month from Social Security, and I receive $428 from Social Security. I have observed in my family that a wife who has never worked receives half of her husband’s Social Security each month past the age of 65. Am I being penalized for having worked enough to receive my own Social Security but not half of his ?
When a male member of my family passed away his wife began receiving his Social Security payment instead of her own. If my husband should die before me, will I receive his Social Security amount or will I still receive mine (about a third of his)? I was born in 1919.--B.W.
Answer: I’m grateful to you for providing your telephone number because, on the face of it, both Joe Giglio of the local Social Security office and I were puzzled by the same thing: the size of the monthly check being received by your husband. It’s considerably more than the average Social Security recipient gets. Our brief chat cleared up the mystery, however.
Under normal circumstances, the maximum monthly benefit for anyone reaching the age of 65 in 1986 would be $760, Giglio said, and even then (after dropping the five years of lowest earnings), the recipient would have had to earn the annual maximum for all 30 of the remaining years.
And the annual maximum earnings began modestly enough--standing at $3,600 a year from 1951 to ‘54, increasing then to $4,200 until ’59 when it went up to $4,800, and then to $6,600 in ’66. This figure then started going up sharply--to $39,600 last year and then, for 1986, to $42,000.
Tied to Average
These automatic jumps in the amount on which we pay Social Security are tied to national average wage increases as determined by the Internal Revenue Service.
For the husband retiring at 65 this year, with the maximum monthly benefit of $760, and with a wife, also 65, who has never worked, the monthly check (made out in both their names) would be for $1,140 (100% of his monthly benefit plus 50% representing his wife’s share).
If his wife has worked, however (and the wife is also 65 or takes early retirement at 62), there would be two checks issued--representing 100% of his benefits and 100% of her benefits (or 80% of her benefits if she elected early retirement).
Higher Option
At the husband’s death the wife has the option of either continuing to receive her check, or his, whichever is higher (but no, not both).
So, Giglio’s and my puzzlement was pretty understandable: If $760 is the maximum this year, how in the world is your husband receiving $1,190 a month?
Your explanation put this into perspective. You have a remarkable husband, who is now 80 years old, still working at the maximum level of earnings and still paying into the Social Security system.
“While it’s not unique,” Giglio added, “it’s certainly uncommon to have someone that age working and still earning the maximum.”
And so your husband has had three things working for him that have mushroomed the benefits that he’s now receiving:
--For every year after age 65 when he applied for Social Security (in order to be eligible for Medicare) he received a “delayed retirement credit” until he turned 72.
--Annual cost-of-living adjustments were automatically credited to him.
--Every year his benefits were recomputed with the lowest-earning year being thrown out and replaced by the current, higher-earning year. Of the three influences, Giglio feels, this recomputation of benefits every year has probably had the biggest impact.
The delayed retirement credit, Giglio added, came about because between the ages of 65 and 72, your husband collected no Social Security benefits--he was still working and was making too much money to qualify.
This increased his deferred benefits 1% a year until he hit the age of 72, at which time he began collecting monthly benefits automatically because other income no longer affected them. (This has since changed, Giglio pointed out. The benefits now go up 3% a year for every year you’re either earning too much to qualify or, for some other reason, decline to take your benefits. And the age at which you start collecting benefits, regardless of income, has been dropped from 72 to 70.)
Can Earn $7,800
Currently, anyone over the age of 65 who applies for Social Security but continues working can earn up to $7,800 a year without penalty. Above that, however, he or she loses $1 in Social Security benefits for every $2 earned. Thus, if anyone is today eligible for the maximum, $760 a month (or $9,100 a year), but continues working at some sort of endeavor that earns, say, $26,500 a year, he or she has wiped out the Social Security benefits, but the deferred benefits--receivable when the person turns 70--have gone up 3% a year. (The amount earned, $26,500, less the allowable $7,800, leaves $18,700, and half of that--$9,350--cancels out the Social Security benefits that would have otherwise been received.)
Unearned income from dividends, interest or other pension plans don’t enter into this, of course.
No, you aren’t really being penalized by having your benefits based on your own earnings. It might seem that way simply because your husband’s benefits are so far above the norm. Under normal circumstances (assuming, for instance, that your husband’s benefits were the current maximum, $760), your own benefits ($428) would be well above half of his ($380).
And no, Giglio assured us, you won’t have to scale your living back to your own benefits of $428 a month if your husband dies. As in the earlier example cited, you would--at that time--have the option of choosing either your own monthly benefits or his.
Just for the heck of it, why don’t you choose his?
