Hi Larry:

My wife and I are both 60. My benefit at FRA will be more than twice hers. We are considering having me wait until 70 to claim, and having her claim somewhat earlier; the problem is figuring out when.

There's one wrinkle. She works as a part-time community college instructor, earning about $30,000 per year. However, in California those earnings are outside of the Social Security system, i.e. she pays into a teacher's retirement system instead, and does not pay any Social Security tax. However, she is almost certain to receive no actual pension from the teacher's retirement system. She is also likely to keep working after 62 in this role.

Two questions for the optimal strategy would seem to be (1) would she suffer a benefits penalty due to her earnings if she claims at 62 (until FRA), and (2) if she claims early, does that reduce permanently her spousal and possible survivor benefits to be received past age 70?

Thanks in advance for any insights you can offer.

Hi,

If your wife gets either a pension based on her earnings outside of the Social Security system or some type of lump sum payment in lieu of a pension, her own Social Security retirement benefits could be subject to reduction due to the Windfall Elimination Provision (WEP) (https://www.ssa.gov/pubs/EN-05-10045.pdf). Furthermore, due to the Government Pension Offset (GPO) provision (https://www.ssa.gov/pubs/EN-05-10007.pdf) any Social Security spousal or survivor benefits for which your wife may qualify could be subject to being offset by 2/3rds of the amount of her non-covered pension, or the prorated amount if she receives a lump sum in lieu of a pension.

However, unless and until your wife actually receives a non-covered pension or lump sum, her work outside of the Social Security system wouldn't affect her benefit rates. But, if your wife files for Social Security benefits prior to her full retirement age (FRA) her benefits could be partially or fully withheld if she works and earns more than the Social Security earnings test exempt amount (https://www.ssa.gov/planners/retire/whileworking.html).

If your wife files for her own retirement benefits at age 62 she'd keep any reduction for age that she takes for as long as both of you are living. If she later qualifies for additional spousal benefits on your record when you file, those benefits would only be reduced for age if she's under FRA when she becomes eligible for the spousal benefits. Regardless of when she starts receiving retirement and/or spousal benefits, though, it wouldn't affect her survivor rate. Her survivor benefit rate would be unreduced as long as she's at least FRA when she starts drawing the survivor benefits. And, if you wait until age 70 to start drawing your benefits, she could get your increased rate as a survivor. She wouldn't get your full rate plus her own, though, just the higher of the two rates.

Our software is programmed to handle the WEP and GPO provisions as well as Social Security earnings test considerations, so you and your wife should strongly consider using the software to explore and compare your various options.

Best, Jerry