Dear Liz: In a recent column, you suggested someone might not want to apply for early survivor benefits if they were still working because earnings over $18,240 will be reduced by $1 for every $2 earned. I don’t understand the logic. One can still earn $18,240, plus half of additional earnings plus the survivor benefit. Why do you recommend it is better to not apply?
Answer: You’ve misunderstood how the earnings test works.
When you apply for Social Security benefits before your own full retirement age and continue to work, your benefit — not your pay — is reduced by $1 for every $2 you earn over a certain limit, which in 2020 is $18,240.
Let’s say your survivor benefit is $1,000 a month, or $12,000 a year. If you earn $32,240 a year, that’s $14,000 over the earnings test limit. Your $12,000 benefit would be reduced by $7,000 — half of $14,000. You’d get $5,000 a year or $416.67 a month.
Now let’s say you earn $42,240, or $24,000 over the limit. Half of $24,000 is $12,000. Your $12,000 benefit is completely offset by the earnings test, reducing your check to zero.
The earnings test disappears at full retirement age, which is somewhere between 66 and 67, depending on when you were born. After that point, your earnings no longer impact your benefit amount.
On the Survivor Benefits snd Earnings Tests discussion above, you miss a very important point. The amount of money that is not paid to you each year that is over the earnings limit is still credited to your account and once you retire, it is redistributed to you by way of increasing your monthly benefit. Thus, earning more than the earnings limit shouldn’t deter you from starting survivors benefits early.