Chris Stein, CFP®
Timing Your First Benefits Check
The following question came in this week…
“I understand the earnings test for those under FRA but my question has to do with the period between filing and arrival of the first payment. I plan to file later this year at the age of 64. Since my current income is over the amount allowed for earnings test I would use the grace year provision. My birthday is on the 23rd. Let’s hypothetically say I file on July 23 for benefits. My first payment would arrive on the 4th Wednesday of September (correct?) I presently earn about $7,000/month, which is well over the monthly allowed amount for the grace period year. Could I work at my current job for August and not be penalized for earning that much, or does the monthly earnings test begin when I actually file in July? If I can earn that much in August I would rather quit work at the end of that month instead of July: it’s a lot of money to leave on the table otherwise.”
Two Keys to Timing Your Benefits
The key to this is to remember that the earnings test applies when you EARN wages in the same month you are AWARDED benefits. It is not when you actually receive the money from either.
1: Awarded vs. Received
If you go in to file on the 23rd of July, the first month you can be awarded benefits is for August, which is then paid to you in September. SS benefits are paid the month after they are awarded. Since you are filing before your full retirement age, you cannot file retroactively to claim benefits for months before July 23rd.
You are correct that the $7,000 wages will trigger an earnings test offset, but only if you earn them in the same month you are claiming SS benefits. If you claim SS as of August 1st, you will want to keep your earnings below the limit. This would ensure you get an unreduced SS benefit payment in September (for your August benefit). If you want to work to the end of August and avoid the earnings test, you should ask that your SS benefits begin in September, leading to your first payment being received in October.
2: Earned vs. Paid
The good news is that if you earn the $7,000 in August, but your employer doesn’t pay you the money until September, it will NOT jeopardize the September SS benefit since the earnings test is based on the month you EARNED the money, not when you get paid.
By the way, it is correct that if your birthday is the 23rd of the month, your benefits are paid the 4th Wednesday of each month. If your birthday falls from the 1st to the 10th you are paid the 2nd Wednesday, if it falls from the 11th to the 20th you are paid the 3rd Wednesday, and birthdays after the 20th lead to payments on the 4th Wednesday.
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