Social Security Planning

Recently in a meeting Phil and I were talking to someone, and he brought up a very interesting strategy. He mentioned that he and his wife were talking about getting a divorce so he could continue to work and not reduce his wife’s social security benefits.

He mentioned that they would continue to live together but he was worried about her social security. I wanted to hear more and make sure I understood the “strategy”, so I started asking more questions. The gentleman mentioned that he was at a retirement planning seminar and the speaker told everyone that if a spouse makes a certain income, it can cause penalties on the other spouse’s social security benefit.  

Fortunately, we met with this person and were able to educate him on how social security works. If one spouse is over full social security age (around 67 depending on your DOB), the other spouse can earn as much income as they would like, and it won’t have any reduction in the other spouse’s benefit. The household income will be included in the calculation to determine how much of Social Security is taxed but the benefit itself won’t be penalized.

Social Security is taxed once the combination of 50% of Social Security benefit plus any other earned income is more than $32k if you’re filing jointly. This includes most people so it’s important to submit a W-4V withholding request to the Social Security Administration if you’d like them to withhold taxes, so you aren’t hit with any surprises come tax time.

If I were to guess, here’s where the confusion occurred: If you are under the full retirement age (around age 67 referenced above), and you continue to work your benefit will be penalized if you earn over a certain amount. In 2024, you’ll lose $1 in Social Security Benefits for every $2 you earn over $22,320. If you’re in your full retirement year, you’ll lose $1 for every $3 you earn over $59,520 until the month you turn full retirement age.  This can be a large penalty, especially if you aren’t prepared for it.

This is why it’s so important to have correct information. I’m not sure if the person and their spouse would have gotten a divorce but could you imagine, going through all of that and it wouldn’t have made a difference in their planning. If you have any questions on your Social Security or any other retirement benefits, please don’t hesitate to reach out to your team at OmniStar. Social Security can be very confusing but we’re here to help.

https://www.fidelity.com/insights/retirement/social-security-pros