I recently did a radio show, and the host asked me what the most common questions I get are. I told her they can be divided into two broad categories: politically oriented questions (usually about the financing of Social Security) and program-related questions (mostly about Social Security benefits). She told me to stick with the latter. I thought I'd share with you what I discussed on this radio program. Here are some of the more common questions I get about Social Security benefits.
Q: How will my retirement benefit be figured?
A: In a nutshell, a Social Security retirement benefit is a percentage of your average monthly income using your highest 35 years of inflation-adjusted earnings.
So when you file for retirement benefits, the Social Security Administration (SSA) will look at your earnings history and pull out your highest 35 years. They don’t have to be consecutive. If you don’t have 35 years of earnings, the SSA must plug in an annual salary of zero for every year you did not work, until the 35-year base is reached.
However, before they add up those “high 35,” they index each year of past earnings for inflation. And this is where the formula starts to get messy. That’s because there is a different adjustment factor for each year of earnings, and each year’s adjustment factor is different based on your year of birth.
You can find a complete breakdown of those inflation adjustment factors for each year of birth on the SSA’s website. If you have a hard time navigating that website, just Googling “Social Security indexing factors” will lead you to the right place.
The next step in the retirement computation formula is to add up your highest 35 years of inflation-adjusted earnings. Then you divide by 420—that’s the number of months in 35 years—to get your average inflation-adjusted monthly income.
The final step brings us to the “social” part of Social Security. The percentage of your average monthly income that comes back to you in the form of a Social Security benefit depends on your income. Basically, the lower your average wage, the higher the percentage rate of return you get. Once again, the actual formula is messy and varies depending on your year of birth. You can find a complete breakdown of those computation “bend points” on the SSA website or by Googling.
Believe it or not, that was the “simple” explanation of how a Social Security retirement benefit will be figured. If you want an in-depth explanation, you'll find it in my book “Social Security—Simple and Smart,” available at Amazon and other booksellers.
Q: I heard a wife is supposed to get half her husband’s Social Security. I’m not. How come?
A: Probably because you took benefits before your full retirement age. When you do that, benefits are reduced. For example, if you took benefits at 62, your spousal rate should be around 30 percent.
Q: If I die, what will my wife get?
A: The answer depends on several factors. But assuming you die well after your full retirement age, and assuming your wife is over her full retirement age when you die, as a general rule, she will get what you were getting at the time of death. Here’s a quick example: You are 85 and getting $2,800 per month. Your wife is 82 and getting $1,700 per month. When you die, she will keep getting her $1,700, and then she will get an additional $1,100 in widow’s benefits.
Q: I took my benefits at 70, so I get an extra 32 percent added to my retirement rate. When I die, will my wife’s widow’s benefit be based on my augmented age 70 rate or my full retirement rate?
A: It will be based on your age 70 rate. And just to clarify a little further: A benefit paid to a spouse whose husband is still alive is based on his full retirement age rate. But as I just said, a widow’s benefit is based on the age 70 rate (assuming the husband waited until 70 to claim his benefits).
Q: I’m already getting my Social Security, but I’m still working. Will my additional income and the taxes I’m paying increase my Social Security check?
A: It depends. Your original benefit was based on your average monthly wage using your highest 35 years of inflation-adjusted earnings. If the earnings you have now are higher than the lowest inflation-adjusted year used in your original computation, the SSA will drop out that lower year, add in the new higher year, and adjust your benefit accordingly. But don’t expect a windfall. Your benefit might go up by $10 to $20 per month for a year of good earnings.
Q: When my father died, why did we have to return his last check?
A: Several rules come into play here. First, Social Security benefits have never been prorated. Second, benefits are always paid one month behind. And third, the law says you must live an entire month to be due a Social Security check for that month.
Here is a quick example: John died on June 24. The Social Security check that comes in July (the payment for June) must be returned.
That’s the downside to the lack of proration. But there are two upsides. One: Let’s say John started his benefits when he was 66 and that he turned 66 on June 22. He would get a check for the whole month of June even though he was 66 for only eight days of the month. Two: If John left a widow, she would get widow’s benefits for the whole month of June even though she was a widow for only six days of the month.
