I filed a restricted application for spousal benefits in June 2019 when I reached my FRA of 66. My wife, DOB of 4-10-55, filed for early Social Security retirement benefits at the same time. She is still working part time and we have told Social Security that we estimate that she will earn only $15,000 in 2020, which is below the limit allowed before benefits are withheld. My question involves the possible scenario that she continues to work and surpases the earning limit. I understand that her benefits will be withheld now, to factor in the over earning penalty, then will gradually be paid back after she reaches her FRA. Will my spousal benefits also be withheld or not at the same time as hers? And if spousal benefits are withheld, will they be returned to me later or lost forever?
Yes, at least some of your spousal benefits would be subject to withholding if your wife earns in excess of the Social Security earnings test exempt amount. And, no, those benefits would not be returned to you in the future. Let me explain with an example.
Say Mary files for reduced retirement benefits effective January 2020 when she reaches age 63. Mary's primary insurance amount, which is the amount she'd receive if she filed at full retirement age, is $1000, but Mary's reduced age 63 rate is $775. Mary's husband Joe was born prior to January 2 1954, and he files a restricted claim for spousal benefits when Mary files for her benefits. Joe's unreduced spousal rate is $500, or half of Mary's PIA, and his benefit rate is unreduced because he was already full retirement age (FRA) when he became eligible for spousal benefits.
Mary is working and will earn $23,340 in 2020, which is $5100 more than the Social Security earnings test exempt amount of $18,240. Therefore, Social Security will need to withhold $2550, or $1 for every $2 of Mary's excess earnings, from the 2020 benefits payable on Mary's record. Mary's and Joe's monthly benefits total $1275 (i.e. $775 + $500), so Social Security would need to withhold both Mary's and Joe's benefits for 2 months because of her excess earnings. When Mary reaches FRA, her benefit rate would be increased to remove the reduction previously applied for the 2 months of non-payment, raising her monthly rate to $783. However, Joe would not be due any similar adjustment because he is already receiving an unreduced benefit rate.