If you claim benefits before your full retirement age and keep working, Social Security withholds a portion of your benefits if your earnings exceed certain amounts, a figure known as the exempt amount. (For 2020, the exempt amount is $18,240; for people attaining full retirement this year, the exempt amount is $48,600, applied only to earnings in months before the month of full retirement age attainment.)
Social Security withholds $1 in benefits for every $2 of earnings in excess of the exempt amount. But the reduced benefits are not lost permanently. When you reach your full retirement age, your monthly benefit will be increased permanently to account for the months when benefits were withheld.
Married couples have an important additional option for increasing their household benefit: One spouse claims early while the other delays. Consider a couple in which one spouse is 66 and the other 63. The older spouse has a full retirement benefit of $2,400, and the younger spouse can expect a full benefit of $1,500.
Mr. Meyer calculates that if both file now rather than at full retirement age, they forgo as much at $59,000 in lifetime benefits, and $275,000 compared with delaying to age 70. If the younger, lower-earning spouse is laid off and starts benefits now but the older, higher-earning spouse delays starting benefits until 70, they will have $170,000 more in benefits than if they both start benefits right away.
How does my longevity figure into this?
This question underscores an important caveat accompanying Mr. Meyer’s projections, which assume a life span to 90: Not only may your mileage vary — it certainly will. Financial advisers routinely illustrate outcomes assuming long life spans as a way to test the retirement plans they draw up.
Men who reach 65 have a 33 percent chance of living to 90, and women a 44 percent chance, according to the Society of Actuaries. And for married couples, there’s a 63 percent chance that one spouse will live to at least 90. Yet a recent study by the society found that half of us wrongly estimate our life expectancy by five or more years, with 23 percent overestimating and 28 percent underestimating.
Those numbers illustrate the classic argument for Social Security’s value as insurance against outliving our financial resources. But the challenges of the pandemic economy may turn that argument on its head.