Continuing to work while receiving Social Security benefits may cause a reduction to your benefit – if you earn more than the annual earnings test (AET) amount. But this reduction isn’t permanent – you will get credit for reduced Social Security benefits when you reach Full Retirement Age. So how does this work?
Earnings Test
The earnings test limit is $17,640 for 2019 if you are under Full Retirement Age for the entire year. The limit is $46,920 in the year that you reach Full Retirement Age. Full Retirement Age (FRA) is age 66 if you were born between 1946 and 1954, ratcheting up to age 67 if your birth year is 1960 or later.
So for 2019 if you were born after 1952 and you are receiving Social Security benefits, for every two dollars that you earn over $17,640, one dollar of your benefit is withheld.
For example, if you earn $20,000 in 2019 and your Social Security benefit is $500 per month, that’s $2,360 more than the limit. Your $500 benefit will be withheld for the first 3 months, in order to withhold the full $1,180. The extra $320 will be refunded to you at the beginning of the next calendar year.
The same would happen if you will reach FRA in 2019 and you earn more than $46,920. Let’s say you make $48,000 during the first half of 2019 and you reach age 66 on July 1. Since you’ve earned $1,080 more than the limit before reaching FRA, $1 is withheld for every $3 over the limit. So if your SS benefit is $1,000, in order to withhold $540, 1 months’ worth of benefits will be withheld, and the over-withheld $460 will be paid out in January of the following year.
The Payback
Once you reach Full Retirement Age, you will receive credit for reduced Social Security benefits. SSA will look at your record to determine how many months’ worth of benefits that you have had withheld due to the earnings test. Your filing age is then re-calculated, adding on those months of withheld benefits.
For example, let’s say over the years a total of 9 months’ worth of benefits had been withheld due to the earnings test. At FRA, your filing age is re-calculated as if you had filed at the age of 62 years, 9 months – an addition of 9 months.
Since your original benefit was reduced by 25%, your re-calculated benefit would only be reduced by 21.25% – owing to the fact that the year between age 62 and 63 increases your benefit by 5%. So your $500 benefit is increased to $525 per month from now forward.
Application
This reduction and payback applies to your own retirement benefit, spousal benefits and survivor benefits. If your own benefit is withheld due to earnings over the limit, your beneficiaries’ benefits (your spouse’s or children’s benefits) will also be withheld until the reduction amount is completely covered.
Sterling Raskie, MSFS, CFP®, ChFC®
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Hi Jim,
So if I understand the Payback example, 9 months of $500 retirement benefits were witheld which is $4500. And the payback is the fact benefit is FRA is increased by $25 to $525. So it takes 180 months or 15 years to get paid back. But beyond that, the $525 benefits continue, so it’s a gain! Is that correct? ($ are today’s $)
Thanks,
aeb
I think you’ve described the process very well. I have to take your word for the calculation of the increase to benefits, but at face value it sounds correct.
Excellent summary! Regarding this statement: “This reduction and payback applies to … survivor benefits.” I cannot find the authority for this principle in POMS, CFR, the Social Security Act, ssa.gov, or anywhere else in Google. I can’t even find a discussion on this issue. It must be in there somewhere, but I would really appreciate your identifying for me the authority for recalculation of survivor benefits at FRA when amounts have been withheld under the Earnings Test.
Thank you very much!
Peter: upon further review, it turns out that the credit for withheld benefits does apply to spousal and survivor benefits in addition to retirement benefits. The POMS reference is RS 00615.482. Apologies if I steered you wrong before.