Ask Rusty - High earners and the Family Maximum

Dear Rusty: My question is this: If both spouses are high earners with significant Social Security contributions in their own right, delaying their benefits to get a bigger Social Security amount could mean they will exceed the maximum "family" payment. Isn't it to their advantage for both spouses to take Social Security at 62 at the "reduced amount" if together they would still exceed the "family maximum"? Otherwise, aren't they leaving money on the table and getting no increase in payment by delaying collecting? Signed: Inquiring Mind

Dear Inquiring: What an excellent question! Let's lay out the pieces:

1) Regardless of how much these hypothetical "high earners" actually earned, they would have only paid payroll taxes up to the annual contribution limit for each year they worked. That limit - $127,200 for 2017 - increases periodically if a formula used by the Social Security Administration calls for it. Once they reached the earnings contribution limit each year they would have no longer paid into Social Security for that year.

2) Let's assume that the earnings of both were greater than the annual contribution limit for their entire careers, and that they are both eligible for the maximum monthly benefit ($2,687 for 2017) at their full retirement age. Their combined SS benefit based upon their own work records at their full retirement age (assumed as 66) would be $5,374.

3) The Family Maximum applies to survivors, spouses, and children, etc. families who receive benefits based upon a primary wage earner's work record. Couples who collect only retirement benefits are not affected unless three or more family members receive benefits. So, in this hypothetical example of two high wage earners, the Family Maximum benefit does not apply.

So the answer to your question is: For these two high-earners, applying early for both of their benefits at age 62 will cause them both to receive benefits at a permanently reduced rate of about 75% ($1,934) of their full amount. If they delay they can both receive their full benefit amount ($2,687) at their full retirement age, and if they choose to defer beyond their full retirement age their benefits will continue to grow at about 8% per year until they are age 70, when their monthly benefit amount would be about $3,546 each, or $7092 combined.

The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed in this article are the viewpoints of the AMAC Foundation's Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation's Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services. The Foundation welcomes questions from readers regarding Social Security issues. To submit a request, contact the Foundation at info@amacfoundation.org.

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