Penalties for wages earned earlier in year before started collecting SS?

[BillP697610]

Working through more details of logistics, and had something that I'm not clear on.  I'm already retired, and planned to start collecting SS later this year when I hit my full benefit age.  My wife is still working, but we planned for her to retire (stop working) just before I start collecting, and we would both start collecting SS at the same time.  She is slightly younger than me, so we know she won't get the 100% of full retirement age, but we were okay with that.

But now I'm wondering about something.  Since we are starting to collect in the middle of a year, where she had prior earnings, is that going to impact her payments?  Originally I was thinking no, since she won't have any income after she starts collecting.  But now I'm second guessing that, and wondering if SS looks at the year as a whole rather than months?  If that was the case then her earnings from earlier in the year are substantial and could have a major affect I would expect.

Any knowledge on this situation?

[GailL1 · Accepted solution]

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@BillP697610 wrote:

But now I'm wondering about something.  Since we are starting to collect in the middle of a year, where she had prior earnings, is that going to impact her payments?  Originally I was thinking no, since she won't have any income after she starts collecting.  But now I'm second guessing that, and wondering if SS looks at the year as a whole rather than months?  If that was the case then her earnings from earlier in the year are substantial and could have a major affect I would expect.

Any knowledge on this situation?

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Two part answer.

1.  Since your wife is younger than her FRA,  her benefits will not be reduced by the 2021 SS earnings limit because there is a Special Rule for those in this category who retire mid-year and the amount they have earned to date could already be over the 2021 earnings limit.

Social Security: Retirement Benefits: Special Earnings Limit Rule - She will have nothing deducted no matter what amount she has earned earlier in the year of retirement because of this Special Earnings Limit Rule.

2.  Now as to the amount of earnings that she made earlier in the year of retirement which could have a bearing on her actual benefit computation if substantial - SS Retirement beneficiaries who have wages reported for the previous years have their benefit reviewed ( its automatic)  - If the latest year of earnings is one of the highest years, SS recalculates the benefit and pays the beneficiary the higher adjusted amount. The increase is retroactive to January of the year after you earned the money.

Social Security - Retirement Benefits - Receiving Benefits While Working