Lynn Brenner's Family Finance

Can My Unemployment Insurance Benefit Be Cut If I Collect Social Security?

Q: I'm a resident of Virginia, and I've been receiving full unemployment benefits for about two months now. I recently received a letter saying the state would have to start paying me only 50% of what I was getting because they believe I may be receiving Social Security benefits.

The fact is, in 2006 I lost my wife, so my two sons are collecting survivor benefits. I know that's probably what they're talking about. The check comes to me because they are minors, but it is for them. So my question is, does the fact that my kids receive survivor benefits affect how much unemployment insurance I receive? --JD, via email

A: No. Social Security survivors' benefits should not have any impact on your unemployment insurance.

You're almost certainly right about what prompted the letter. Virginia does reduce your unemployment benefit by 50% of your weekly Social Security retirement benefit. It's one of only five states in the nation that still has a law off-setting unemployment insurance for Social Security benefits. But there's no offset for your sons' survivor benefit.

For other readers who don't know, surviving children who are under age 16  -- and disabled children of any age -- are eligible for a Social Security survivor benefit based on their deceased parent's work record. A widower who has minor or disabled children in his care is also eligible for a survivor's benefit as the adult who is responsible for them. (The same is true for a widow.)

The Social Security payment you get as a widower with minor children will end when they're no longer minors. In any event, it is not a retirement benefit and therefore should have no effect on your unemployment benefits.

The five states that still have Social Security off-set laws for unemployment insurance are Illinois, Louisiana, South Dakota, Utah, and Virginia. ***

In the past, I've written that only four states still have these offset laws. I was wrong not to include Virginia and South Dakota.

Virginia's original 100% offset -- which subtracted your entire Social Security retirement benefit from your unemployment insurance benefit -- was changed to a 50% offset in 2003, and eliminated in 2005. But Virginia reinstated the 50% offset last summer. In many cases, of course, that reduction effectively eliminates unemployment benefits.

South Dakota repealed its offset law in 2006 -- but that repeal was only to become effective when the state's unemployment trust fund reached a balance of $30 million. That never happened. South Dakota still reduces a claimant's unemployment benefit by 50 cents for every dollar of Social Security he or she receive, says Rick McHugh, a staff attorney at the National Employment Law Project.

***The original post incorrectly included Colorado among the states that still have a Social Security offset law. Colorado repealed its law late last year.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.(c) Lynn Brenner, All Rights Reserved

 

I'm Getting Severance Pay - Will That Reduce My Social Security Benefit?

Q: I am a 62 and a half year old widow in Ohio, and I just lost my job.

I currently receive a small pension for my deceased husband's employer. Those payments will end in seven years. I'd like to apply for my Social Security benefit now, to supplement that pension. Can I draw unemployment insurance at the same time? In seven years when the pension runs out, can I switch from my own Social Security benefit to my survivor Social Security benefit? The survivor benefit is much more than my own full benefit would be.

My employer is giving me 14 weeks of severance pay, to be paid out as regular payroll instead of in a lump sum. If I apply for Social Security now, will those severance payments affect my benefit? Should I wait until my severance has run out before I apply? --BP via email

 

 A: Let's dispose of the unemployment insurance question first, since it's the simplest. Yes, you can collect unemployment insurance and Social Security at the same time.  Only five states don't allow this, and Ohio isn't one of them.

You don't have to wait until your 14 weeks of severance ends before you apply for Social Security. The severance won't affect your Social Security benefit.

You’re smart to raise that question, though. When you collect Social Security before reaching your full retirement age – which in your case is 66 --  you forfeit some benefit if you are earning over a certain amount a year.  In 2010, you forfeit $1 of your benefit for each $2 you earn above $14,160.  If you reach full retirement age during 2010, you forfeit $1 of benefit for each $3 you earn above $37,680, until the month you reach full retirement age.  (These amounts are the same as they were in 2009.)

Once you reach your full retirement age, there’s no more earnings cap: you get your full benefit regardless of how much you make. Also, whatever was deducted earlier because of your earnings is added back into your benefit. (In other words, you don’t permanently forfeit this money.)

You're 62. Depending on what you earn, 14 weeks of wages certainly could temporarily reduce your Social Security benefit. However, severance doesn’t count as wages.

After they stop working, people often receive special payments, such as severance pay, bonuses, and accumulated vacation or sick pay, says Jane Zanca, a Social Security Administration spokeswoman in New York City. Those special payments don't count towards the annual earnings cap. But in your case, your severance pay will automatically be reported to Social Security as wages, since you’re being kept on payroll for 14 weeks. To make sure it’s excluded from the earnings cap calculation Zanca says you should get a letter from your employer stating the amount you received and saying it that was severance.

As a widow, you have an option not available to other Social Security recipients. When a married person applies for Social Security before full retirement age, she is automatically applying for her own benefit and her spousal benefit, and gets whichever is bigger. But a widow can choose to take either benefit, and switch to the other at her full retirement age. (Widowers also get this choice.)

To collect the maximum benefit – whether it’s your own or your survivor’s benefit – you must postpone applying for it until you’re 66.  

Let’s put imaginary numbers on this to make it clearer. For example, let’s say if you wait until 66 to apply, your own benefit is $1,200 and since your survivor’s benefit is much bigger, let's say it's $2,000. In that case, if you apply at 62 for your own benefit, you'll get $900; if you apply at 62 for your survivor’s benefit, you'll get $1,620.

You’re proposing to take the $900 a month now to supplement payments from your husband’s pension, and switch to the $2,000 survivor’s benefit in seven years when the pension stops. You are allowed to do that, and clearly i makes good financial sense.

For the rules that explain these options, go to the Social Security Administration's Web site, here and here.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.(c) Lynn Brenner, All Rights Reserved

Can I File For Social Security While I'm Unemployed, & Then Suspend My Benefit When I Find a Job?

Q: If you are not at full retirement age, can you start receiving Social Security benefits, and then suspend them a few months later?

I'm 64 years old, and am facing being laid off from my job. I'm considering starting Social Security. If I start working full time again, say in 6 months, would I be able to suspend my Social Security payments? Also, can I draw Social Security and at the same time receive unemployment benefits? -- LD via email

A: You're not eligible to 'suspend' your Social Security benefit. But you can still follow the strategy you've described.

You must be at your full retirement age -- in your case, age 66 -- to suspend your benefit and earn delayed retirement credits.

But that doesn't mean you can't 'retire' at 64, and later return to work.

Let's assume you live in one of the 45 states that allow you to collect unemployment insurance and Social Security at the same time. (The exceptions are Illinois, Louisiana, South Dakota, Utah, and Virginia.)**

And let's say you lose your job, and file for both unemployment insurance and a reduced Social Security benefit. At 64, your monthly Social Security payment will be about 20% less than if you'd filed for it at 66.

Six months later, you get another job and return to work until you're 66. Then you retire for good.

Here's what would happen:

Depending on your salary at the new job, the Social Security Administration would start to withhold some or all of your monthly benefit. For example, in 2009 and 2010, you forfeit $1 of benefit for each $2 you earn above $14,160.

If your salary is big enough, you might forfeit your entire monthly Social Security check.

But this loss is temporary.

In fact, when you stop working again at 66, your Social Security benefit will be bigger than it was at 64. The reason: It will be recalculated to take into account whatever amount you forfeited as a result of the annual earnings cap.

It will also reflect any additional benefit that you may have earned by working at that second job.

And what if you like the new job so much that you decide to keep working even after turning 66? In that case, at 66 you'll once again begin receiving your full Social Security payment -- adjusted to make up for whatever amount you forfeited earlier -- because after you reach full retirement age, you're no longer subject to an annual earnings cap.

**The most recent state to repeal its offset law was Colorado, late last year.

Although South Dakota has also repealed its offset law, the repeal was contingent on the state's unemployment trust fund reaching $30 million. The trust fund never got close to that amount. So South Dakota still reduces a claimant's unemployment benefit by 50 cents for every dollar of Social Security he or she receive, says Rick McHugh, a staff attorney at the National Employment Law Project. And although Virginia repealed its 50% offset law in 2006 -- a repeal also triggered by the balance of the state's unemployment trust fund -- the law was revived after the trust fund balance fell due to the current recession.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

Can I Collect Social Security and Unemployment Insurance At The Same Time?

Q: I’m 62 years old and a widow.  I have three questions. First, can I draw on my late husband’s Social Security benefit since I am a widow? If the answer is yes, will taking a widow’s benefit now affect my own Social Security benefit when I retire? And finally, can I collect a Social Security benefit now and draw unemployment insurance at the same time, since I’m currently unemployed!  --CB via email

 

A: Yes, no, and probably.

At 62, you are eligible to collect a widow’s benefit. Filing for it now won’t have any impact on the Social Security benefit you collect in the future based on your own work record.

And you can collect unemployment insurance at the same time as long as you don’t live in Illinois, Louisiana, South Dakota, Utah, or Virginia.

Those are the only five states that still reduce unemployment insurance benefits for people who are collecting Social Security retirement benefits.**

(Readers who live in those states should double-check to find out exactly how their laws apply to Social Security disability and survivors' benefits -- and whether the laws are likely to be repealed in today's harsh economic environment. Most states have already dropped such punitive requirements. As recently as 2002, however, there were still twenty-two states with laws requiring unemployment benefits to be ‘off-set’ by 50% to 100% of your monthly Social Security retirement benefit payment.)

Your maximum benefit as a widow or a widower is 100% of what your spouse would receive if he or she were alive. That means if your spouse took retirement benefits early, you’ll get less than the full retirement age benefit based on his or her work record.

One caveat: at 62, you won’t be eligible for the maximum widow’s benefit.

Although you can file for a widow’s or widower’s benefit as early as age 60, the amount you get is smaller when you file for it before you’ve reached your own full retirement age. In your case, that’s age 66.

At 62, your widow’s benefit is subject to a 19% reduction.

In other words, a benefit that would be $1,000 a month at age 66 is going to be $810 a month if you take it now. But hey, now is clearly when you need it! And fortunately, taking it now won’t prevent you from switching to your own full retirement age benefit when you turn 66.

**This post originally left South Dakota and Virginia off the list of states that reduce your unemployment benefit if you're collecting Social Security. Virginia had repealed its offset law, but reinstated it when the state's unemployment insurance trust fund balance fell due to the recession. And South Dakota's repeal of its own offset law hasn't yet been triggered: repeal is contingent on the state trust fund reaching a balance it hasn't come close to achieving.

The original post included Colorado among the states with an offset law; however, Colorado repealed that law late last year.

Please send your questions to Lynn@LynnBrennersFamilyFinance.com.  I'm sorry I can't respond personally to every email. Questions are only addressed online.

(c) Lynn Brenner, All Rights Reserved

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