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Social Security Earnings Tests

first paycheck by bigburpsx3As you know, you can receive Social Security retirement or survivors benefits and continue working.  If you happen to be less than Full Retirement Age (FRA) and you earn more than certain amounts though, your benefit will be reduced.  (Note: these reductions are not really lost, your benefit will be increased at FRA to account for those benefits withheld due to earlier earnings.  This later increase does not, however, apply to spouses and survivors who are receiving benefits that are reduced because of work.)

Earnings Tests (2010 and 2011)

If you’re at or older than FRA when you begin receiving retirement or survivors benefits, you may earn as much as you like and your benefit will not be reduced.  If, however, you are younger than FRA, your benefit will be reduced $1 for every $2 you earn over $14,160 before the year of FRA.  The benefit will be reduced by $1 for every $3 you earn over $37,680 in the year of FRA, up until the month you reach FRA. (2010 figures)

For example, let’s say your benefit is $700 per month ($8,400 for the year) and you are age 63.  You work and earn $20,000 during the year, which is $5,840 more than the earnings test for your age.  The Social Security Administration would withhold a total of $2,920 from your benefit ($1 for every $2 over the limit).  This is done by withholding the benefit for five months, January through May – for a total of $3,500 being withheld.  Beginning in June you’ll receive your full $700 benefit, and in January of the following year you’ll receive $580 extra for the additional amount that was withheld above the $2,920.

Now, if this year is the year you’ll reach FRA – for example in June, and your earnings through May were $40,000 ($2,140 more than the limit), your $8,400 benefit would be reduced by $713, which is accomplished by withholding your first two checks of the year, and the additional $687 will be paid to you in January of the next year.

Hope this clears up the very confusing way that earnings tests work with Social Security benefits.  As always, leave a question (or call me) if you are still uncertain.

Photo by bigburpsx3

9 Comments

  1. [...] important to consider earnings if you’re filing early and continuing to work (see Social Security Earnings Tests for more information), as this can impact the amount of benefits you actually [...]

  2. Earnings Tests in the Year You Begin Benefits - Finance | Business News Online says:

    [...] As you may already be aware, there are limits to the amounts that you can earn while receiving Social Security benefits.  This factor is covered in detail in this earlier article – Social Security Earnings Tests. [...]

  3. [...] As you may already be aware, there are limits to the amounts that you can earn while receiving Social Security benefits.  This factor is covered in detail in this earlier article – Social Security Earnings Tests. [...]

  4. ColleenNo Gravatar says:

    I was actually wondering about what you said about the SSA repaying someone if money was withheld due to exceeding the earnings test. I was under the impression that if you exceeded the earnings test that you got a higher payment later because you contributed more in the period that woud were exceeding the limit and the SSA recalculated your benefit accordingly.

    If you read the section “Will you receive higher monthly benefits later if benefits are withheld because of work” from the link below it seems like that is what it is saying. I even did the backwards math and it would take 15 yrs to recoop the money lost in the example.

    http://www.socialsecurity.gov/pubs/10069.html

    Please let me know your thoughts,

    Thanks

    1. jblankenshipNo Gravatar says:

      Okay, Colleen. Now I understand what you’re asking about… if you look at the publication How Work Affects Your Benefits I think you’ll see what I referred to in the article about the over-withholding. (This is the same publication you referred to.) According to the example under the section entitled “How much can you earn and still get benefits?”, the over-withholding is to be repaid in January of the following year – assuming, of course, that your income is below the limit in that year. If not, SSA will continue withholding $1 of every $2 over the limit until you reach FRA.

      The piece that you are referring to is the increase in overall benefit due to the withholding of $1 of every $2 (or $1 of every $3 during FRA year) – and yes, it can take quite some time to “break even” from that situation.

      Hope this helps!

      jb

  5. ColleenNo Gravatar says:

    Can you verify this with a reference from ssa.gov?

    1. jblankenshipNo Gravatar says:

      I’m not real clear what you’d like to have verified – you might try this link: Effects of working while receiving Social Security Retirement benefits

      If that’s not what you were looking for, let me know!

      jb

  6. [...] However, working during your retirement (before FRA) could have the impact of reducing your benefit, depending on how much you’re earning. This is partly made up for when you reach FRA, but it’s important to know so that you can plan for the Social Security benefit reductions from working. [...]

  7. Social Security Earnings Tests | Business News Online says:

    [...] Social Security Earnings Tests [...]