Photo credit: jb
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 the article at this link – Social Security Earnings Tests.
What isn’t clear is just how these earnings impact your benefits in the year that you first begin receiving your Social Security benefits…
If you’re at FRA (Full Retirement Age) or later when you begin receiving your benefits, you have no earnings limit at all. And if you’re younger when you begin your benefits (as the earlier article outlined) up to the year you will reach FRA your benefit will be reduced by $1 for every $2 that you earn over the limit ($19,560 for 2022). During the year you are FRA (before you reach the actual FRA), your benefit will be reduced by $1 for every $3 that you earn over the FRA limit ($51,960 for 2022).
What’s important to know is that, no matter when you start your benefits, you can earn as much as you like, prior to starting your benefits. The earnings limits only apply AFTER you’ve begun receiving your benefits, and then only if you’re younger than FRA when you commence receiving benefits. In the case of the years prior to FRA, your benefit will be reduced when your monthly income is greater than $1,630 per month, for every month that you are receiving Social Security benefits, but only if your total income for the year is more than $19,560. This is just a pro-rated application of the annual limit of $19,560 for 2022, and it only applies during your first year of receiving benefits.
The same pro-rate method is applied for the year of FRA – the monthly limit is $4,330 for 2022. This only applies when you start benefits during that year you’ll reach FRA.
And as stated before, once you get to FRA, there is no earnings limit at all.
Hope this clears up the Earnings Limit issue during the year you begin receiving benefits.
Sterling Raskie, MSFS, CFP®, ChFC®
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
I was getting SS benefits and my benefits were suspended last year due to the earnings test. Since the SS COLA appears set to rise at over 8% for 2023, I was wondering if my monthly benefit will rise by the COLA amount if I restart benefits next year.
First off, unless you specifically suspended your benefit (or SS informed you that your benefit was suspended), I bet your benefit is just being withheld due to the earnings test. As such, even though you’re not actually receiving a benefit check, your benefits are “active”. So there is no need to be concerned about whether or not the COLA will be applied, since you’re actively in receipt of benefits, they’re just being withheld due to earnings. The COLA will be applied to your benefits in January just like someone who is actually receiving the benefits.
Actually, there’s no need for concern either way, even if you had never applied for benefits the COLA would be applied to your future benefits whenever you start receiving them.
Does the FRA limit apply to only earned income, or to IRA distributions also?
That’s a great question, Steve – no, IRA distributions or other non-earned income, such as capital gains, interest, dividends, etc., are not included as “earned income” for the Social Security earnings tests.
jb