Should She Claim Social Security Early to Clear Her Credit Card Debt?

Ask Rusty – Older Husband and Working Wife Seek Guidance

Dear Rusty: I am 74 years old, retired and receiving Social Security. My wife will be 65 in January of 2025. Our hope was to start paying off some credit card expense by her receiving SS when she turns 65, however it appears there would be a substantial reduction to her benefits. Her work income is $37,500 a year, and she wasn't planning on retiring from work at age 65. Because I am 11 years older, we felt it makes sense to use her Social Security as a means to lower our debt. We have $27,000 in credit card debt, and I don't really want to use my 401(k) funds due to taxes. We pretty much live on my Social Security and pension. Signed: Seeking Suggestions

Dear Seeking: Your wife's full retirement age (FRA) for Social Security purposes is age 67. Because she will not yet have reached her FRA in January 2025 (when she is 65), if she claims SS to start at that time, not only will her monthly amount be reduced, but she will be subject to Social Security's annual earnings test. The earnings test sets a limit for how much can be earned by beneficiaries who claim SS before FRA.

The earnings limit for 2024 is $22,320. The limit for next year is not yet published (it's based on changes to the national wage index) but will be a bit higher – likely about $23,500. Thus, I can't provide the exact impact, but if your wife's 2025 earnings exceed next year's limit, Social Security will take back $1 in benefits for every $2 over the limit (half of the amount over the limit). So, if your wife earns $37,500 per year, that will likely be about $14,000 over the limit and Social Security will take back half of that ($7,000). They "take back" by withholding future benefits, or you can repay them in a lump sum. So, you will have a choice – repay Social Security from your other assets, or they will withhold your wife's SS benefits for the number of months needed to offset her penalty for exceeding the earnings limit. The number of months they will withhold depends on how much is owed and what your wife's monthly SS benefit is. For example, if your wife's age-65 SS benefit is about average ($1,900) and her penalty for exceeding the limit is $7,000, Social Security would withhold your wife's benefit for 4 months to recover the penalty, but she would receive her full benefit for the remaining 8 months of the year.

Unless your wife tells them in advance that she will exceed the limit, Social Security will find out the following year (after you file your income taxes). But, in any case, your wife cannot avoid the annual earnings test for working before reaching her full retirement age. The earnings test goes away when your wife reaches her FRA of 67. Until that time, if she continues working she will have a choice to have her benefits withheld for a portion of the year, or simply repay Social Security in a lump sum (in which case her benefits would continue uninterrupted).

FYI, there is a silver lining in this, because if your wife has benefits withheld because she exceeds the earnings limit before her FRA, after she reaches her full retirement age Social Security will give her time credit for the months when benefits were withheld, which will result in her monthly Social Security payment amount increasing somewhat at her full retirement age. Thus, over time, your wife may recover the benefits which were withheld for exceeding the annual earnings limit. But to get 100% of the benefit she's earned from a lifetime of working, and be exempt from Social Security's earnings limit, she would need to wait until she reaches her FRA to claim.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation's staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.

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