Ask Larry: Will Social Security Fix The Problem In Calculating Benefit Rates For Those Born In 1960?

Ask Larry: Will Social Security Fix The Problem In Calculating Benefit Rates For Those Born In 1960?

Today’s Social Security column addresses questions about whether congress is working on a fix for people who turned 60 in 2020, when an application for divorced spousal benefits can be submitted and whether filing early affects the Government Pension Offset. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

Will Social Security Fix The Problem In Calculating Benefit Rates For Those Born In 1960?

Hi Larry, Are there any updates on the problem in calculating Social Security payments for people who turned 60 in 2020 caused by the pandemic? Thanks, Tomás

Hi Tomás, Nothing final has been passed by congress to the best of my knowledge. To clarify, Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings.

The indexing is based on the national average wage (NAW) amount in the year that a person reaches 60. Typically, NAW amounts increase each year, resulting in higher indexed earnings and higher resulting benefit rates. But due to the pandemic, it’s anticipated that the NAW in 2020 will be lower than 2019. That would result in lower indexed earnings and lower benefit rates for people born in 1960.

I assume that Congress is waiting to determine the actual scope of the problem before finalizing any type of fix. You can always contact your congressional representative to see what they’re planning to do about this. Best, Larry

Do I Have To Wait Until My Ex-Spouse Turns 62 To Apply For Benefits?

Hi Larry, I turned 62 in 2020 and I filed for Social Security three months before my birthday. I qualify to get divorced spousal benefit when my ex turns 62 later this year. He earned substantially more than I did. Do I have to wait until he turns 62, or can I apply three months before like I could with my own retirement benefit? Thanks, Allison


Hi Allison, You can submit your application up to four months in advance of the month that you want to claim divorced spousal benefits. Your ex-spouse does need to be at least 62 or be drawing his benefits in order for you to meet the requirements for divorced spousal benefits though. And if he isn’t yet drawing his benefits, then your divorce must have become final at least two years prior to the month that you claim benefits.

You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

How Might My Husband’s Spousal Benefit Be Calculated If I File At 62?

Hi Larry, My husband and I are both collecting government pensions (he was a cop and I was a teacher). He started collecting his own very small Social Security retirement benefit when he turned 62 and he is now 76. His benefit was subject to the WEP. I will be 62 in July. I am debating whether to start drawing my own Social Security retirement benefit then.

Using the WEP calculator on the Social Security website shows I would get a monthly benefit of about $1,000. How might my husband’s spousal benefit be calculated if I file at 62? I think he will be subject to the GPO, but I’m not sure. His government pension monthly benefit is about $9,000 per month. Thanks!

Hi. You describe your husband as a former policeman, so I assume he worked for some type of federal, state, county or municipal governmental agency in the US. In that case, I can’t imagine that he wouldn’t be subject to the Government Pension Offset (GPO) provision if he applied for spousal benefits.

The GPO causes any spousal or survivor benefits for which a person would otherwise be eligible to be offset by 2/3rds of the amount of government pensions they receive that are based on their earnings from a governmental agency in the US. where their earnings were exempt from Social Security taxes.

Regardless of whether you apply for your benefits at 62 or 70 or anywhere in between, your husband’s initial spousal rate would be calculated by subtracting his own primary insurance amount (PIA), which is equal to his full retirement age (FRA) retirement benefit amount, from 50% of your PIA.

It sounds like that would be a relatively small amount to begin with, and assuming that the GPO applies, his spousal rate would clearly be reduced to zero given the amount of his government pension. Best, Larry


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