Q&A: Spousal earnings create questions about Social Security

Q: I was married 22 years to my first husband and got divorced at age 33. I remarried in 1988 at age 52 and became a widow in 2016 at the age of 79. I received a $50/month increase in my Social Security due to husband’s death. My first husband is now retired, 82 years of age and currently unmarried. Am I eligible for more Social Security benefits from first marriage? – 

Gayle Kiser, Palatine, Ill.

A: Now that you are unmarried, you are entitled to a divorced-spouse benefit based on your first husband’s work record, says Elaine Floyd, director of retirement and life planning at Horsesmouth.

“However, because he is still alive, the benefit would be limited to 50% of his primary insurance amount or PIA,” says Floyd. “As a widow, you should be receiving approximately 100% of your second husband’s PIA. In order for the divorced-spouse benefit to be higher than the survivor benefit, your first husband PIA would have to be a significantly higher earner than your second husband.”

Bottom line: It never hurts to contact the Social Security Administration in cases like this to see if you might be entitled to a higher benefit.

Q: What if my spouse works and earns enough to cap Social Security? Will that cause my Social Security to be reduced if I take it now? She is 56 and I am 65. My full retirement age is 66. I have been retired for three years, no job. – John Fulton, Tucson, Ariz.

A: A spouse's earnings will not affect an individual's Social Security benefits on his or her own record, says Joseph Stenken, an advanced markets product consultant with Ameritas and author of 2016 Social Security & Medicare Facts.

Q: I have 23-plus years with a class one railroad which I have paid into the railroad retirement system. I'm 65 years old and I plan on retiring in March of next year. My wife worked at a local store not far from our house for 30-plus years, paid into Social Security and is now collecting her benefit based on her work record.  My question: When I retire, will my wife receive the greater of the two, either her portion of my railroad retirement or her Social Security, one or the other.

If I paid into the railroad retirement system and she paid into the Social Security program, why shouldn't she receive both her railroad retirement portion as well as her Social Security that she had paid into as well? I know our government calls it double dipping. How can it be double dipping is someone has paid into both systems which are mandatory, by the way?  If you should know of away for my wife to be compensated for each, please let me know. There are about 250,000, if not more, railroad workers paying into the railroad retirement system with their spouse working as well paying into the Social Security program. – Henry Parrish, Salt Springs Fla.

A: Assuming you retire and you and your wife file for and begin receiving railroad retirement benefits, a portion of her railroad retirement annuity would be reduced for any Social Security benefit she may be receiving, says Michael Freeman, director of public affairs at the Railroad Retirement Board. There would be no reduction to her Social Security benefit amount.

According to Freeman, employee and spouse railroad retirement annuities are computed under a two-tier format established by the Railroad Retirement Act of 1974. The tier 1 portion of an annuity is based on the employee’s combined railroad retirement and Social Security earnings and is computed using a Social Security benefit formula.

“Tier 1 is essentially the equivalent of the Social Security benefit that would be payable if all of the employee’s earnings had been covered under the Social Security system,” he says. “Since Social Security earnings are already considered in tier 1, this tier must be reduced by the exact amount of any social security benefit an annuitant receives to prevent a duplication in benefits based on the same earnings record.”

As for your wife, Freeman says the basic tier 1 portion of a spouse annuity is equal to 50% of the employee’s tier 1. “As with the employee, the tier 1 portion of the spouse annuity is reduced for any Social Security entitlement, regardless of whether the Social Security benefit is based on the spouse’s own earnings, the employee’s earnings, or the earnings of another person,” he says. “This reduction follows principles of Social Security law under which the beneficiary receives only the higher of any two benefits payable.”

By way of background, Freeman says the authority to adjust railroad retirement benefits to reflect Social Security entitlement is found in Section 3(m) of the Railroad Retirement Act of 1974 or Title 45, Section 231b(m) of the United States Code.

One more thing worth mentioning. “While a railroad employee’s spouse receiving a Social Security benefit may feel there is no advantage in filing for railroad retirement benefits because of the dollar-for-dollar offset to his or her tier 1, it should be noted that the tier 2 portion of a railroad retirement annuity is based solely on the employee’s average monthly earnings and years of service in the railroad industry, and is not reduced for any Social security entitlement,” says Freeman. “The basic spouse tier 2 annuity component is based on 45% of the employee’s tier 2 amount.”

You can get answers to any additional questions about the railroad retirement benefit programs, as well as an estimate of the benefit amounts payable to you and your wife at retirement, by contacting the Railroad Retirement Board 1-877-772-5772 or by visiting www.rrb.gov.

Read also Benefits Under Railroad Retirement and Social Security and Social Security Programs in the United States - Railroad Retirement.

Robert Powell is editor of Retirement Weekly, contributes regularly to Paste BN, The Wall Street Journal and MarketWatch. Got questions about money? Email  rpowell@allthingsretirement.com .