Social Security Application and the Recalculation at FRA

[sheehs1]

I decided to apply early for Social Security and did so last week. I am delaying payment until my 64th Birthday Month which is this April. This first payment will be May.

The reasons that factored in to my applying "early" included longevity risks but more importantly that my actual earned income is right at what they allow before they start reducing the monthly check. A call to Social Security prior to my applying, confirmed they do not consider income from a K1(unless you are an employee and I no longer am), Interest or Dividends from Investments as Income for the purpose of calculating the monthly check, all of which are significant for me.
I will worry about the tax hit later or at least start planning other tax strategies! So few exist today!

The online application was a pleasant surprise. It's easy!
I just got a call today from the Boston office that is processing my application. Yes, SSA notified me via email that I would receive this call from this specific office.

Things I did not know but was pleasantly surprised to learn.
They will automatically enroll me in Medicare Part A and B so I don't have to remember to enroll in Medicare. That was the pleasant part.
I will have to enroll in my own Part D and any supplemental.

I also learned and for me this is the important piece of this post, because I asked the question after reading about it, that while I am taking Social Security before my FRA, which is 66 and 2 months, they will recalculate my payment when I turn 66 and 2 months and the payment will be increased to what is currently reflected on my statement for a Full Retirement Age payment (plus cost of living adjustments and credits for continued work).

For some reason I guess I thought my early social security payment at age 64 would be the same thru out the years with only cost of living adjustments. Learning that it will be recalculated and will increase at 66 and 2 months makes me feel even better about taking it at age 64!

 

[jazz4cash]

Thanks for the info. I don’t get this. What is the point of waiting till FRA if they are going to recalculate anyway?

 

[wmc1000]

Sheehs1, I believe you may have received some faulty info regarding the recalculation to FRA payments.

 

[RunningBum]

Very hard to believe unless there is some situation with a spouse involved where you are on your record until you switch to your spouses. Can you quote what you read? Did you get a written response to your question, or was this on the phone call?

 

[SecondCor521]

By no means am I an SS expert, but I have heard that if one's SS payment before FRA is reduced due to earning too much, that you get some of that back through a higher payment later. See the bottom of page 6 and top of page 7 of this PDF here:

https://www.ssa.gov/pubs/EN-05-10069.pdf

This may be what the OP is referring to.

 

[sheehs1]

jazz4cash, My thoughts exactly. I reiterated what she said to me, back to her ...twice. She confirmed it. It was on the phone. I even asked her this specific question and this is how part of the conversation went:

"So I take my payment starting at age 64 for "X" dollars. Can you tell me then what my payment might be at age 66 and 2 mths when it is recalculated after having received 2 years of payments already".

"It will be "X dollars and is on your statement but since you are still working and paying into Social Security, the recalculation plus cost of living adjustments will be even higher than that."

I had read about the recalculation which is why I asked her about it.
Now just have to remember where the source was. It might have been on some deep link on the social security site. So when I have time, I will hunt around for it again.

But is is possible and not out of the realm of possibility she may have misinterpreted my question. Not once but twice.

 

[MissMolly]

If you are still working, I can understand the recalculation of the monthly benefit at FRA, but I don't see how they can know today what that amount will be. Perhaps a misunderstanding?

 

[sheehs1]

By no means am I an SS expert, but I have heard that if one's SS payment before FRA is reduced due to earning too much, that you get some of that back through a higher payment later. See the bottom of page 6 and top of page 7 of this PDF here:

https://www.ssa.gov/pubs/EN-05-10069.pdf

This may be what the OP is referring to.

I had read that too SecondCor521. But mine is not being reduced. I had printed out the list of all income sources they use but since my situation was not listed, I called and held on the line for over an hour to ask them my specific income question.

 

[RunningBum]

Again, can you cite or quote what you read that made you even ask the question?

One thing I've noticed here is that people get a variety of answers from SSA reps. So I wouldn't factor in that increase at FRA into your retirement plan. It makes no sense at all. The only thing like that I've heard of is that you used to be able to pay back what you had already collected and have them recalculate the benefit. A do-over, where you could take at 62 and decide sometime age 70 or earlier that you wanted to redo it, as I understand it. No longer offered.

 

[sheehs1]

RunningBum, Yes I will search around for it. May take me a while but will certainly try to find it.

Not sure if this is a factor for why I got the answers for my question that I did from the Boston Rep, but on my very modest "earned income", I pay self employment tax (social security) and file a Schedule C. So technically as far as social security is concerned they get that yearly update and I will continue to do so and will get the social security credits even past FRA age. The Rep knew that too...as we discussed it. I think that is also part of what I read when they do recalculate at FRA, when you take Social Security earlier than FRA but do still work , even if modest, and get credits.

 

[SecondCor521]

RunningBum, Yes I will search around for it. May take me a while but will certainly try to find it.

Not sure if this is a factor for why I got the answers for my question that I did from the Boston Rep, but on my very modest "earned income", I pay self employment tax (social security) and file a Schedule C. So technically as far as social security is concerned they get that yearly update and I will continue to do so and will get the social security credits even past FRA age. The Rep knew that too...as we discussed it. I think that is also part of what I read when they do recalculate at FRA, when you take Social Security earlier than FRA but do still work , even if modest, and get credits.

If you're already entitled to SS with 40 quarterly credits, additional credits don't make a difference as far as I know.

What can happen, and it's later in that PDF I quoted above, is if your additional earnings record is high enough to replace some of the 35-years-highest-inflation-adjusted-earnings that they originally calculated your benefit on. They'll recalculate for that too.

 

[RunningBum]

Sure, if you're still making earned income, every year they will recalculate your benefit if the past year was one of the 35 highest earning years, but that just means you might get a small increase, not the FRA benefit. There are also some rules about deferring your SS benefits if you make too much income, but you indicated you are going up to but not over that limit.

 

[sheehs1]

SecondCor521, RunningBum and all others that responded.

This is the link that made me ask the question...and driving into the links further provided. Similar to the link ScondCor521 provided. It is about "continuing to work" and knowing that I also will continue to pay into Social Security even while receiving benefits. While I said with my modest "earned" income they were not cutting my benefits I think they are cut but oh so slightly. To be more exact, I will make a whopping $360/yr more than what is allowed, so I am sure they are deducting for that difference however modest that difference is. I know the exact amount since it is preset "Board Fees". Now, I make way more than that but it is not from income sources they count. My K1 and ownership of a family business of which I am not an employee is considered "investment income" to Social Security.

Link that started my research: Scroll to the "You can Keep working" section. And read SecondCor521's pdf link. This is how I knew there would be a recalculation.

https://www.ssa.gov/pubs/EN-05-10147.pdf

All that said, I really think the Boston agent is wrong to the degree she stated. While my question was very specific, I don't think she "heard" it correctly-Even after asking it twice and discussing it with her. Perhaps I got overly excited, huh?
But there will be a recalculation at FRA.

For Miss Molly: My earnings for Board Fees and the yearly amount will not change. But to your point, Social Security does not know that. 2018 isn't even posted yet.

RunningBum: It will replaced some of my earlier years 1972-1980 (high school, college , etc) and about 6 other years but net affect may not be that much. I have a work history from 1972-today.

Wmc1000: I believe you are correct. The more I think about that conversation and because of the research i had done prior to applying as well as the links provided here...no way will they go the FRA amount. There will be a recalculation and additional credits, etc. but what she said does not make sense to me.

 

[Al in Ohio]

SecondCor521, RunningBum and all others that responded.

This is the link that made me ask the question...and driving into the links further provided. Similar to the link ScondCor521 provided. It is about "continuing to work" and knowing that I also will continue to pay into Social Security even while receiving benefits. While I said with my modest "earned" income they were not cutting my benefits I think they are cut but oh so slightly. To be more exact, I will make a whopping $360/yr more than what is allowed, so I am sure they are deducting for that difference however modest that difference is. I know the exact amount since it is preset "Board Fees". Now, I make way more than that but it is not from income sources they count. My K1 and ownership of a family business of which I am not an employee is considered "investment income" to Social Security.

Link that started my research: Scroll to the "You can Keep working" section. And read SecondCor521's pdf link. This is how I knew there would be a recalculation.

https://www.ssa.gov/pubs/EN-05-10147.pdf

All that said, I really think the Boston agent is wrong to the degree she stated. While my question was very specific, I don't think she "heard" it correctly-Even after asking it twice and discussing it with her. Perhaps I got overly excited, huh?
But there will be a recalculation at FRA.

For Miss Molly: My earnings for Board Fees and the yearly amount will not change. But to your point, Social Security does not know that. 2018 isn't even posted yet.

RunningBum: It will replaced some of my earlier years 1972-1980 (high school, college , etc) and about 6 other years but net affect may not be that much. I have a work history from 1972-today.

Wmc1000: I believe you are correct. The more I think about that conversation and because of the research i had done prior to applying as well as the links provided here...no way will they go the FRA amount. There will be a recalculation and additional credits, etc. but what she said does not make sense to me.

Don’t forget those earlier years max amounts are adjusted for inflation.

 

[sheehs1]

Don’t forget those earlier years max amounts are adjusted for inflation.

Thank you. I did know that.

I guess for me the bottom line and since I don't mind sharing, what added to my decision in addition to the longevity risks is that even at 64 my monthly payment is close to $2,400/mth. I recently started accounts to "help" fund my grandchildren's college educations via treasury zero coupon bonds with date targets starting the first year they start college. I have three grandchildren, ages 5, 3 and 3 days old. I will be doubling down on the 5 year old.

Yes, I know about 529 plans as well as the tax deductibility but the bonds are what I used to fund my daughters college. They worked well and I knew early on what I would have each year of her college years. No risks of investment if held until maturity which they will be, are backed by the government and no paperwork, etc which I was concerned about since my daughter is not investment savvy at the moment. Also in these UGMA accounts, I can invest those dollars in other ways should I choose. If they decide to do something other than college it will be a nest egg to help them start life.

The thought has been with me the last 2 years since I turned 62 that I can not leave anyone my Social Security Payments. And I hate leaving "money on the table" which speaks to my own longevity risks. (Mom at 76 and Dad at 82)

Seemed a good way for my Social Security payments to keep on giving to the next generation or should I say technically generation skipping to my grandchildren.

At least that is the plan.

 

[joeea]

The reasons that factored in to my applying "early" included longevity risks

Can you explain how longevity risks factored into applying early?

I also learned and for me this is the important piece of this post, because I asked the question after reading about it, that while I am taking Social Security before my FRA, which is 66 and 2 months, they will recalculate my payment when I turn 66 and 2 months and the payment will be increased to what is currently reflected on my statement for a Full Retirement Age payment (plus cost of living adjustments and credits for continued work).

Are you sure about that? It doesn't sound right. I'm guessing either they said the wrong thing or you misunderstood.

The credits for continued work makes sense. Any work you perform where social security taxes are deducted is always factored in. Although since you will have very little income, it's likely you won't actually get any credits.

But you don't get FRA money unless to start benefits at FRA. No free lunch.

 

[sheehs1]

Can you explain how longevity risks factored into applying early?

My mother passed at age 76. All 3 of her siblings passed at ages before she did.
My Dad passed at age 82. Only 1 of his 2 siblings passed at an age after him.
I take after my Mom's side of the family.

My break even age for social security taking it at age 64 is 79. I would have to live 13 years past age 66 and 2 months to make up the difference in the payments.
It's a guess for all of us how long we will be on this earth.

To determine or estimate break even age: https://www.dummies.com/personal-fi...n-analysis-for-your-social-security-benefits/

Regarding the other, I think it's been determined that whatever the Boston Rep said to my very specific question was not entirely accurate. There will be a recalculation but it will not recalculate up to the FRA age payment.

Another poster had written there is often mis- information given by social security reps on the phone and I guess this is a prime example. I asked the question twice giving her examples of "the question" and repeating back to her what she said to me for clarity and to make sure we were understanding each other. I guess I expected the reps processing applications to be well versed and knowledgable in fielding the various questions we all have. I was also putting a lot of weight and some faith in her answers. In hind site, she was probably just trying to get the paperwork off her desk as quickly as possible.

 

[donheff]

I am curious about what you mean by K1 income not counting unless you are an employee. DW just filed at 66 because she received modest K1 self employed income. Our understanding was that income would reduce her payments until 66 at which time her payments would be adjusted up to gradually return the withheld amounts. BUT, the initial payment amount would be based on the reduced age 62 (or 64 in your case) percentages. The adjustment would merely be made to cough up the amounts withheld. If you have some kind of K1 income that doesn't count for the reduction what basis would there be to adjust your payment at 66? You are just a regular early retiree.

 

[youbet]

In hind site, she was probably just trying to get the paperwork off her desk as quickly as possible.

There ya go...…

Routine SS reps know how to handle a few common transactions as long as those transactions stay within tight boundaries. Go outside of those boundaries and you're asking for trouble.

For example, my DW spends dozens of hours with SS folks either on the phone or at the local office each year. Her monthly check is less than her Part B premium so she must be billed the difference. (They take all of her check and bill her for the amount the check doesn't cover.) They really struggle to do this. Apparently the amount is calculated manually and the poor sap who does this must have a loooooong backlog. Bills fail to arrive, warning letters saying she'll be dropped from Medicare litter the mailbox and calls to straighten it all out (repeatedly) fall on ears attached to brains with no answers. When we fell into the IRMAA fandangle (due to RMD's starting), it only got worse since they need to send her a separate bill for that. Etc.

Over the few years this has been going on, DW has progressed from feeling stressed over it to taking it more in stride. Each time they repeatedly screw up, she calmly sits on hold for long periods and then tells the story to someone who insists on hearing it before saying "oh, I can't handle that." Then she gets forwarded to another long hold or gets told someone will call her, which they seldom do. DW then starts again.

Sigh...… eventually she gets hooked up with someone who is more knowledgeable regarding her situation and is actually willing (or allowed) to take some time and figure out what is going on this time.

SS in NOT a good place to fall off the beaten track.

 

[sheehs1]

I am curious about what you mean by K1 income not counting unless you are an employee. DW just filed at 66 because she received modest K1 self employed income. Our understanding was that income would reduce her payments until 66 at which time her payments would be adjusted up to gradually return the withheld amounts. BUT, the initial payment amount would be based on the reduced age 62 (or 64 in your case) percentages. The adjustment would merely be made to cough up the amounts withheld. If you have some kind of K1 income that doesn't count for the reduction what basis would there be to adjust your payment at 66? You are just a regular early retiree.

donheff: After printing off the list of income sources they consider on the SSA website, I called the Social Security Administration the week before I applied to fully understand how my K1 income might or might not affect my monthly payment. I was worried about it, unclear about it and it would be a huge factor in my decision.

My siblings and I own a multi-generational business started by my mother. It is an S-Corp, hence the K-1. I worked there as an employee and Vice President. However I have not been an employee for many years, receive no salary or W-2, etc. I receive a K1 for my percentage of the profits that drop to the bottom line as an "owner" of the company. I was told by the Social Security Administration they only consider "earned income" as "income". This is also verified in many of the links on the Administrations website. Since I do not get a W2 or 1099, it is considered "investment income" and would not affect my monthly SSN payment. It is like owning an MLP or some other stock that generates a K1 for investors. A K-1 doesn't always mean "self-employment". Not sure about your wife's situation. I can verify that the Boston Rep processing my application verified my monthly payment will be what my current Social Security statement says after factoring in a delay of about 4 months to get to April 2019.

The only basis for any recalculation at FRA would be because I do get a 1099 or modest "self employment income" for Board Fees and will be continuing to pay into Social Security on that 1099 income. I do so as I make my Simple IRA contribution as a Schedule C filer based on the amount of this income. I doubt the recalculation will be significant. So yes, I am just a "regular early retiree".

 

[sheehs1]

youbet: That sounds like a nightmare and your wife must have the patience of a saint.

I held for over an hour and 30 minutes just to get an answer to my K1 income question. I can't imagine having to do it every darn year, multiple times, etc.

 

[Rianne]

I decided to apply early for Social Security and did so last week. I am delaying payment until my 64th Birthday Month which is this April. This first payment will be May.

The reasons that factored in to my applying "early" included longevity risks but more importantly that my actual earned income is right at what they allow before they start reducing the monthly check. A call to Social Security prior to my applying, confirmed they do not consider income from a K1(unless you are an employee and I no longer am), Interest or Dividends from Investments as Income for the purpose of calculating the monthly check, all of which are significant for me.
I will worry about the tax hit later or at least start planning other tax strategies! So few exist today!

The online application was a pleasant surprise. It's easy!
I just got a call today from the Boston office that is processing my application. Yes, SSA notified me via email that I would receive this call from this specific office.

Things I did not know but was pleasantly surprised to learn.
They will automatically enroll me in Medicare Part A and B so I don't have to remember to enroll in Medicare. That was the pleasant part.
I will have to enroll in my own Part D and any supplemental.

I also learned and for me this is the important piece of this post, because I asked the question after reading about it, that while I am taking Social Security before my FRA, which is 66 and 2 months, they will recalculate my payment when I turn 66 and 2 months and the payment will be increased to what is currently reflected on my statement for a Full Retirement Age payment (plus cost of living adjustments and credits for continued work).

For some reason I guess I thought my early social security payment at age 64 would be the same thru out the years with only cost of living adjustments. Learning that it will be recalculated and will increase at 66 and 2 months makes me feel even better about taking it at age 64!

Our CPA told us this also happened with him/DW. He was not expecting the increase, but they reimbursed him for years lost and his SS was brought to FRA amount. Maybe it depends on the SS agent you talk to? Can they adjust at will?

 

[Dreamer]

For example, my DW spends dozens of hours with SS folks either on the phone or at the local office each year. Her monthly check is less than her Part B premium so she must be billed the difference. (They take all of her check and bill her for the amount the check doesn't cover.) They really struggle to do this.

You have me worried now. This is my exact situation. Last year was my first year starting Medicare in March. They did withhold all of my social security checks and billed me the difference. Worked fine. I have not heard from them this year and was wondering when I will receive my bill. I hope that I don't have the problems that your poor DW does.

 

[sheehs1]

Our CPA told us this also happened with him/DW. He was not expecting the increase, but they reimbursed him for years lost and his SS was brought to FRA amount. Maybe it depends on the SS agent you talk to? Can they adjust at will?

Rianne, I have no clue if it depends on the agent spoken with or if they can adjust at will.
Perhaps if there are others part of our community here that filed early and experienced a recalculation at FRA they can weigh in regarding reasons and significance.

 

[DoHowv]

Here is a Code of Federal Regulations resource that will help answer your questions:

https://www.ssa.gov/OP_Home/cfr20/404/404-0000.htm

Especially pay attention to 404.430 ~404.450 that pertain to Earning Tests and Grace Year and Self employment. Research Grace Year as it determines whether your exempt earnings are calculated on a monthly or annual basis. Basically MET (monthly earning test) is only used in your Grace Year and AET (annual earnings test) is used in other years. If your FRA is your Grace Year than you are subject to a monthly amount calculated by the months preceding your birth month. If your FRA is after your Grace Year the AET applies.

I don’t know how you K1 figures into this.

Here are other Usful resource:

https://secure.ssa.gov/poms.nsf/lnx/0302501025#b

https://secure.ssa.gov/apps10/poms.nsf/chapterlist!openview&restricttocategory=03

As others have said do not rely on answers from SSA agents as you will get different answers from each agent.