14 Jan Will unemployment reduce my Social Security benefits?

Q. I turned 65 in September. I am currently on Medicare but plan to file for Social Security benefits at full retirement age in November 2021. My estimated benefit is $1,930 per month. I’m on unemployment, and I recently learned the benefits are not recognized as income for Social Security purposes. My income has been around $50,000 until I lost my job. Will the unemployment benefits count against me when Social Security calculates my benefits?
— Out of work

A. We’re sorry to hear about your job loss.

Your fears are unfounded.

First, you’re correct that unemployment benefits are considered unearned income for Social Security purposes.

The benefits will incur federal income taxes — and in some cases state income taxes but not in New Jersey — but they will not incur Social Security taxes, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York and an adjunct professor of personal finance at Montclair State University.

This unearned income does not reduce your Social Security retirement payments if you apply for benefits before full retirement age.

“Only income that incurs Social Security taxes are included in the calculations,” he said. “Your actual yearly earnings that incur Social Security taxes are indexed for inflation and using the amounts in the 35 years in which you earned the most, your average indexed monthly earnings is calculated.”

A formula is then applied to this monthly earnings to arrive at the primary insurance amount — the monthly benefit you will earn at full retirement age, Panambur said.

Also note that Social Security benefits, before full retirement age, could be reduced depending on how much you make, he said.

“However, since you plan to apply for benefits at full retirement age, your earnings will not reduce your benefits no matter how much you earn,” he said.

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This story was originally published on Jan. 14, 2021.

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