Calculating Your Earnings For Social Security

As I’ve mentioned before, I often receive questions from readers that include topics that may be of general interest to my reading community.  When this happens, I will post the question and my answer to that question, with the names omitted and some details changed to protect identity.

Note:  you can send in your own question, too. Just go to the submission form along the right side of this page, under the heading “Not Finding Your Answer?”.  It’s painless and simple – and as long as your question isn’t too complicated I’ll get a response out to you as soon as possible.  If your question is more complex, I’ll let you know how we can proceed at that point.

This topic comes from a reader, J., who asks the following question:

My wife is 62 and she works a part-time job earning around $23k per year.  She is planning to retire in June, and so her total earnings for the year will be approximately $11,500.  She would like to begin taking Social Security benefits right after her retirement.

The question is this:  will her earnings test be based upon her “individual” earnings, or on the higher combined earnings of the two of us (I am still working, earning in excess of the earnings test amount)?  Since her earnings of approximately $11,500 are under the $14,160 earnings limit, her earnings would not be reduced – but if the earnings test is based upon both of our earnings combined, her earnings would definitely be reduced.  How does this work?

My Response

Each person’s earnings record is specific to that individual – the only time the spouse enters into the equation is in calculating spousal or survivor’s benefits.  Therefore, the only earnings considered for the “earnings test” for your wife – are those of your wife, and not the household (not including your income, in other words).  Actually one other time that the household earnings are considered is when you file your tax return:  at your household income level, her benefit will be taxable at the 85% amount.

In addition, there is a special rule that applies to the first year of retirement, when a person retires mid-year:  the retiree who retires in mid-year is eligible for a full benefit (however reduced by age, in your wife’s case) for any whole month that the person is considered retired, regardless of total yearly earnings.

“Considered retired” when at less than Full Retirement Age is defined as having earned $1,180 or less and not performing substantial services in self-employment.  “Substantial services in self-employment” is defined as more than 45 hours per month in a business or more than 15 hours to a business in a highly skilled occupation (e.g., brain surgery or writing a blog about Social Security and financial planning).

So, with this in mind, your wife would be eligible for her age-reduced benefit for the remainder of the year after her retirement, with no reductions due to earnings tests (as long as she doesn’t pick up another job).

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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A Social Security Owner's Manual

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