How Social Security Earnings Limits Impact Total Family Benefits

As we’ve discussed in the past, there are limits on the amount of earnings that a person can receive while also receiving Social Security benefits, if the person on whose record the benefits are being received is under Full Retirement Age.  But those earnings limits don’t only impact the benefit of the primary receiver of benefits – anyone else who is also receiving benefits based on his or her record will also be impacted by the earnings limits.

How Does This Work?

As you know from the previous article, in 2012 if an individual is receiving wage income in excess of $14,640, for every $2 of earnings over that amount, benefits received are reduced by $1.  If there is no one else receiving benefits on his or her record, the individual would lose benefits by $1 for each $2 over the limit.

However, if someone else is receiving benefits on the same record, such as a spouse and/or a child, the total amount of reduction remains the same, but the reduction is spread pro rata across all benefits being received on that person’s record.

An Example

For example, let’s say that John has a PIA (Primary Insurance Amount) of $2,000, and is age 62.  He files for his own benefit, at a reduced amount of $1,500 per month.  At the same time, John’s wife, Priscilla (age 66) who has no earnings record of her own, files for Spousal Benefits on John’s record.  The Spousal Benefit to Priscilla is $1,000 per month.

John is still working, earning a total of $20,000 per year, which is $5,360 more than the earnings limit.  That amount will reduce the benefits for both John and Priscilla by $2,680 – prorated between the two benefits.  So once the amount of earnings is known (typically by the following year), benefits of $1,072 will be withheld from Priscilla’s checks, and $1,608 from John’s checks.  The math is as follows:

$2,680 x ($1,500 / $2,500) = $1,608 (John’s reduction)

$2,680 x ($1,000 / $2,500) = $1,072 (Priscilla’s reduction)

The same would go for any other people that are receiving benefits based on John’s record – the total reduction is limited to the overall $1 for every $2 rule.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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