OK, class. You’ve been reading my column for a number of years now. It’s time to see how much you’ve learned. So put on your thinking caps, get out your No. 2 pencils, and good luck with this short pop quiz.
Question 1: How many years of earnings are used to compute a Social Security retirement benefit? And are your actual earnings used, or a variation of those earnings?
Question 2: If you are 62 and working full time, can you sign up for reduced Social Security benefits?
Question 3: What is the bonus that you get if you delay benefits beyond your full retirement age (FRA)?
Question 4: “You can take reduced benefits at age 62 on your spouse’s record and later switch to full benefits on your own Social Security record.” True or false?
Question 5: Husband Hank’s FRA benefit is $2,000 per month. But he delayed benefits until age 70 and is getting $2,640 per month. Wife Wilma never worked, so she filed for spousal benefits on Hank’s record when she turned full retirement age. How much is she getting?
Question 6: Referring back to question 5, when Hank dies, how much will Wilma get?
Question 7: Referring back to questions 5 and 6, if Wilma dies first, what will Hank get (include any special burial benefits)?
Question 8: Tom is 62 and still working and he and his wife are covered by his employer’s health insurance plan. His wife is 65 and retired from her own job that did not offer health insurance. She is about to apply for Social Security and Medicare. Should she take both Parts A and B of Medicare?
Answer to question 1: Thirty-five years of inflation-adjusted earnings are used. To figure your benefit, the Social Security Administration indexes all of your yearly earnings for inflation, pulls out the highest 35 of those years and adds them up. Then they divide that total by 420 (the number of months in 35 years) to get your average indexed monthly wage. Finally, they multiply that amount by a variable percentage that depends on how high or low your wages are. It’s about 40 percent for average wage earners.
Answer to question 2: You could file for benefits, but you won’t get anything, assuming you are making well over $19,560 per year. That is the earnings penalty threshold for 2022 for people who are under their full retirement age (FRA).
In the year you reach your full retirement age, you can make up to $51,960 in the months leading up to your FRA month. Once you reach your full retirement age, these earnings penalties go away, and you can make as much as you want.
Answer to question 3: Many of you may have answered “8 percent per year.” Others might have answered “32 percent if you wait until 70.” Both answers are technically correct, if your full retirement age were 66.
But the bonus is actually two-thirds of 1 percent for each month a benefit is delayed beyond full retirement age. So, if your full retirement age is greater than 66, you will have fewer months to accrue those delayed retirement credits, so your bonus at age 70 will be less than 32 percent.
Answer to question 4: False (with one exception). In the past, many people were able to jump through a loophole that allowed them to do that. That loophole is closed for anyone who was not age 66 by Jan. 2, 2020. However, widows or widowers can take reduced benefits on one record at 62 and later switch to full benefits on the other record.
Answer to question 5: Wife Wilma is getting $1,000 per month. A wife who delays taking spousal benefits until full retirement age is due one-half of her husband’s Social Security benefit. But she does not share in the delayed retirement bonus that Hank is getting. So, Wilma only gets one-half of Hank’s FRA rate of $2,000 — or $1,000.
And by the way, if Wilma would have taken benefits before her full retirement age, her spousal rate would be reduced about one-half of 1 percent for each month she is under FRA.
Answer to question 6: Wilma will get $2,640 per month in widow’s benefits. Even though a wife does not share in her husband’s delayed retirement bonus, the law says a widow can.
Answer to question 7: Hank won’t get a nickel. He can’t get widower’s benefits because his own retirement benefits are higher. And he won’t even get the measly little $255 death benefit. In Question 5, I pointed out that Wilma never worked. The death benefit is paid only on the account of someone who worked and paid Social Security taxes.
Answer to question 8: Tom’s wife should sign up for Part A Medicare (hospital coverage) because it is free. But she doesn’t need to take Part B (covers doctor visits, lab tests, etc.), which costs $170.10 per month, because her husband is working, and she is covered by his employer’s insurance.
When her husband retires and loses that active employment health coverage, then she should apply for Part B, and she won’t pay any delayed enrollment penalties.
Tom Margenau is the author of “Social Security — Simple and Smart.”