Annual Earnings Test Adjustments for Retirement, Spousal, and Survivor Benefits

The heart of the question relates to the adjustment at FRA relating to benefits withheld due to the Annual Earnings Test.  Does that adjustment occur with only retirement benefits, or will that adjustment apply also to survivor or spousal benefits as well?

When Social Security benefits are withheld due to the Annual Earnings Test (AET), adjustments are made to ensure beneficiaries receive the correct payment once they reach Full Retirement Age (FRA). The AET applies to individuals who receive benefits before reaching FRA and continue to work, earning over a specific threshold. For 2024, this threshold is $21,240.

For retirement and spousal benefits, adjustments occur at FRA. If benefits were withheld because earnings exceeded the limit, Social Security will recalculate the benefit amount at FRA, effectively crediting the months when payments were withheld. This recalculation increases the monthly benefit moving forward, compensating for the withheld payments. For example, if benefits were withheld for six months, the recalculated benefit will reflect a higher amount as if the individual delayed filing for six months.

Survivor benefits also undergo adjustments, but these occur at both age 62 and FRA. If a survivor’s benefits were reduced or withheld due to the AET, Social Security recalculates the benefits at these milestones. At age 62, an initial adjustment may be made, and a final adjustment occurs at FRA. This ensures the surviving spouse receives the appropriate benefit amount, reflecting any withheld payments due to excess earnings.

In summary, while the AET can temporarily reduce Social Security benefits, adjustments made at FRA (or earlier for survivors) help to restore the correct payment level, ensuring that beneficiaries are compensated for any reductions.

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