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 $17,640 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 might be included as taxable at as high as the 85% rate.
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 $1,455 (monthly) 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).
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
This post is incredibly relevant to what my parents are going through right now! My dad plan to continues to work while my mom took somewhat of a surprise early retirement. Things seem like a mess for them and I’m trying to read a lot of articles like this to help them out.
Glad to hear it’s helpful to you!
LOL, someone who is writing a blog about Social Security and financial planning (no need to identify said blogger/planner) has a VERY BIG HEAD, and may soon need brain surgery to reduce the size of his cranium, although I doubt that either a Cat Scan or MRI would likely identify the true cause behind the enlargement of his noggin’, if he equates his expertise (despite how extensive and impressive it truly is) with that of a Brain Surgeon.
On a more serious note, wouldn’t the earnings (and other income) of both spouses also be taken into account for purposes of determining whether they were subject to an Income Related Monthly Adjustment Amount for their Medicare Premiums, if either (or both) of them was on Medicare? In this example the lady who was retiring was only 62 and therefore not likely to be on Medicare. But what if her husband was 65 or older and WAS/IS on Medicare? Wouldn’t both of their incomes (MAGI) have to be taken into account for IRMAA purposes, if they file Jointly on their Federal Income Tax Return?
Have a happy and safe Fourth of July.
What? That was just two examples of highly-skilled occupations that came to mind at the time… :)
You’re right, all income is considered when determining IRMAA impact for Medicare. However, we were only looking at Social Security benefits specifically in this particular case, so I did not include that information.
I think if someone want to retire from his/her job, see his/her health first and insurance for your health. So you can get happy retirement… :)