Benefits and the Working Retiree

Question: I read with great interest your recent article about retired people receiving Social Security, but also working part time, and thereby getting their benefits recalculated each year. Since I retired in 1984, I have worked part time every year to the maximum allowed without being penalized. I rushed to my local Social Security office to find out why my benefits had not been recalculated.

I was told that the early years are being indexed, and that for 1989 you need to earn at least $17,000 in part-time work to get your benefits recalculated. (Of course, $4,200 in, say, 1956, is not $4,200 in today’s money.) The person to whom I talked was unable to tell me what type of indexing is used, however.

I also found that the benefits for every Social Security beneficiary are not automatically recomputed each year. In order to have a recalculation made for 1989, you must have earned $17,000 or above, and you must submit your W-2 form for the year to your local Social Security office to get any action. Who is right in this matter?--B.L.

Answer: We’ll split the difference. The earlier column was in response to a reader who chided me for, by inference, suggesting that, once retired, Social Security benefits would not be increased through part-time work. He went on to inform me that, since retiring 11 years ago, he had had his benefits increased automatically every year (exclusive of cost-of-living adjustments) by virtue of his part-time work.

In the follow-up column to which you refer, I probably made such increases sound more commonplace than they actually are--although many Social Security beneficiaries do, indeed, have their benefits so increased on the basis of part-time work.

Today, a Social Security beneficiary’s earnings (part time) are calculated, and, if they are higher than his earnings for some year 20 or 25 years ago, today’s higher earnings are calculated into benefits and the older, lower, earnings-year is dropped.

Since the late 1970s, though, Social Security has been indexing the early years to take into account, as you put it, that “$4,200 in, say, 1956, is not $4,200 in today’s money.” And so the indexing was put into place to put a more realistic light on today’s part-time earnings in terms of what comparable earnings would have been in, say, 1956.

Right now, the figure given you is about right--at this moment. It takes part-time income of about $17,750 to offset one of those lower, earlier, years. But how does this jibe with the fact that the ceiling on part-time earnings for those 65 and older this year is $8,800?

“The two don’t really have anything to do with each other,” according to Joe Giglio, public affairs spokesman here for Social Security, “because a Social Security beneficiary can earn well in excess of $8,800 in part-time work, and still draw, at least, partial benefits.”

Above earnings of $8,800, that is, you lose $1 in benefits for every $2 earned. So, if you earned $17,750, you would be penalized on the surplus $8,950, or on the one-for-two formula, $4,475.

“But,” Giglio adds, “if his normal monthly benefit was, say, $600, or $7,200 a year, he would still have been receiving annual benefits of $2,725 ($7,200 minus $4,475).” And, of course, that base benefit would still go up because it is replacing--even with indexing--one of those earlier years. It might not mean much at present in terms of money in the pocket, but it will if, in the future, he knocks off the part-time work and draws full benefits.

Giglio doesn’t know why you were told that recomputation requires your W-2 form and that it isn’t automatic. It is automatic.