Impact of earned income while collecting retirement benefits before full retirement age
By Janice Jonet
Elder and Disability
ADRC of Florence County
FLORENCE, Wis. — Many people work after they claim early Social Security retirement benefits. Yet if you earn additional income and have not reached your full retirement age, it may reduce your benefit amount until you reach your full retirement age.
Your full retirement age varies based on the year you were born. For example, if you were born in 1950, your full retirement age was age 66; whereas, if you were born in 1967, your full retirement age will be at age 67. The Social Security Administration created a website that tells you your full retirement age based on your date of birth. This website is www.ssa.gov/planners/retire/ageincrease.html.
How your earnings impact the amount of your Social Security retirement benefits varies based on when you earn those benefits in relationship to your full retirement age. The law provides the following three different ways that earning income can impact the amount of your Social Security retirement benefits:
1. Income earned during any year before the calendar year you reach your full retirement age:
If you are collecting Social Security retirement benefits and earn more than the annual earnings limit, the Social Security retirement benefits will reduce your benefits by $1 for every $2 you earn over the limit. In 2019, the annual earnings limit is $17,640 or $1,470 per month (which is increased for inflation each year). So, in 2019 you can earn up to $17,640 and not reduce your benefits even if you aren’t yet at your full retirement age.
For the year you start collecting Social Security retirement benefits, the reduction only applies to income earned after you start collecting benefits and the SSA only applies a monthly earnings limit test rather than a yearly one. So, if you only start collecting Social Security retirement benefits in November of 2019, any money you earned before November does not count and you can earn up to $1,470 each month in November and December and the SSA will not reduce your retirement benefits.
2. Income earned during the calendar year you reach your full retirement benefit age:
The year you reach your full retirement age there are different rules. First, a different earning limit applies. In 2019, this limit is $46,920. The earning limits are increased for inflation each year. Second, the SSA will only deduct $1 for every $3 you earn over the annual earnings limit. Finally, this deduction only applies for money earned up to the month before you reach your full retirement age. So, if you reach your full retirement age in April, only income earned through March will count toward the $46,920 threshold that impacts your SS retirement benefits.
3. Income earned after you reach full retirement age:
Once you reach your full retirement age, you are no longer subject to the annual earnings limit; you can earn as much as you like without reducing your Social Security retirement benefits.
What counts as income?
For the Social Security early retirement income limit, the SSA considers any of the following as earned income:
— wages, paid time off, commissions, bonuses and royalties;
— if you receive a place to live or a discount on rent in exchange for work; and
— if you’re self-employed, the SSA counts only your net earnings from self-employment.
In contrast, the SSA does not consider any of the following as earned income:
— money derived from investments such as pensions, annuities or retirement accounts;
— federal income tax returns;
— unemployment benefits; and
— other government benefits.
The example below, taken from a Social Security pamphlet on this topic, highlights how this would impact you:
Let’s say that you file for Social Security benefits at age 62 in January 2019 and your payment will be $600 per month ($7,200 for the year). During 2019, you plan to work and earn $22,600 ($4,960 above the $17,640 limit).
The SSA would withhold $2,480 of your Social Security benefits ($1 for every $2 you earn over the limit). To do this, the SSA would withhold all benefit payments from January 2019 through May 2019. As of May, only $80 remains to be taken out of your SSRB check to pay the entire $2,480. However, the rule is that any month that you still have an unpaid balance the SSA will take your entire SSRB check and then pay the extra amount the SSA took in the following year.
Beginning in June 2019, you would receive your $600 benefit and the SSA would pay this amount each month for the remainder of the year. In 2020, the SSA would pay you the additional $520 the SSA withheld in May of 2019.