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A reader from North Dakota wonders if his children's Social Security benefits will be reduced by him working longer.
"If I retire at 62 and have minor children, they will receive benefits based on my Primary Insurance Amount (PIA), as you discussed on a recent podcast. If I continue to work, I will receive a deduction of $1 for every $2 earned over the current $22,320 income limit. My question is: will my children's benefits also be reduced if I continue to work? If not, great. If so, what is the calculation for them?"
I know you hope your children's Social Security benefits will not be affected if you claim when you become eligible at age 62 and earn more than the maximum amount allowed by the earnings test. Unfortunately, the news isn't what you had hoped.
You have a clear understanding of how the earnings test works. In the early years between when you turn 62 and when you reach your Full Retirement Age (FRA), Social Security will withhold some of the benefits you have earned if you exceed the income limit – which in 2024 is $22,320 per year. For every $2 you earn over that limit, Social Security will reduce your benefit by $1. (That formula changes slightly during the year you reach FRA.)
The earnings test also has implications when you have auxiliary benefits, such as children or a spouse collecting benefits based on your work record. It is said that "the earnings test flows down, but it won't flow back up."
And what does this mean? As the number holder – or the person who has generated the benefit – your excess earnings will affect your benefit and all benefits based on your record. In your case, it's your kids. Social Security will proportionately reduce the benefits by applying the earnings test on you and your minor children.
But let's say your minor children had jobs and their own earnings – especially high ones. These earnings would potentially affect their auxiliary benefits but would not "flow upstream" to impact your benefit. It might seem unlikely that minor children would earn enough to trigger the earnings test, but it does happen. However, much more common is for that to happen with a spouse's benefit.
If your spouse is collecting on your record, any earnings test-based withholding applied to you will also flow to your spouse because their benefit is an auxiliary benefit based on yours. However, if your spouse were the one earning, any excess would only affect the spousal benefit and not flow upstream to affect your benefit.
That means you can retire and claim with confidence. Your spouse can claim a spousal benefit based on your record and still work. But you don't have to worry about her earnings affecting your benefit – or your ability to be retired.
In summary, you are concerned about the Social Security auxiliary benefits granted to your minor children due to your work record. If you continue to work after claiming your retirement benefits, any earnings beyond the limit defined by the earnings test will apply proportionately to all your benefits: those you enjoy and those enjoyed by your minor children. Unfortunately, that's not the great news you were hoping to hear.