Do You Get The Money Back
You will be repaid your money once you reach full retirement age. At that time, Social Security recalculates your benefit and gives you credit for the months that benefits were withheld. But remember that if you took benefits prior to full retirement age, your check will not be as large as it would have been if you had waited.
Limits On Earned Income If Claiming Early Benefits
Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. For the year 2021, this limit on earned income is $18,960 . The amount goes up each year. If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit.
Henry is considering claiming early retirement benefits this year, at age 64. Social Security calculates that if he does so, he’ll receive $866 a month . But Henry also intends to continue working part-time, with an income that will be about $5,000 over the yearly limit on earned income. If he does claim the early benefits and makes that part-time income each month, Henry would lose one dollar out of two from the $5,000 he earns over the limit, which means $2,500 for the year. So, by claiming early retirement and continuing to earn over the limit, Henry incurs a double penalty: His retirement benefits are permanently reduced by 13%, and he loses an additional amount every month to the extent he earns over the income limit.
Social Security does not reduce each monthly check by a small amount, unfortunately. Instead, the agency may withhold several months’ entire checks until the reduction is paid off.
What If I Stop Working In The Middle Of The Year
There’s a special rule for when you work part of the year but then retire. Regardless of your total earnings, you’re still entitled to get Social Security checks for any month in which you’ve officially retired.
As an example, say you retire early at 63 and decide that you’re going to quit your $200,000-per-year job at the end of June. You’d forfeit all of your benefits for the first six months of the year because of your high earnings, but, starting in July, you could still get checks for the remaining six months even though your total annual earnings were well above the annual limit.
You May Like: Social Security Money
Don’t Forget The Social Security Earnings Test
The only important caveat to the strategy of receiving Social Security benefits and working at the same time is the Social Security Earnings Test – where ongoing earned income can partially or fully reduce retirement benefits if they are taken early. So you cannot retire at 62 and still work, or earned income above the Earnings Test threshold will reduce the retirement benefits. The strategy of working while getting Social Security benefits is only viable after reaching full retirement age . On the other hand, beyond that point, it really is possible for each subsequent year of work in someone’s late 60s or even 70s and beyond, to be receiving Social Security benefits while working and have those benefits recalculated for the future based on another year of work !
So what do you think? Have you ever counseled a prospective retiree to keep working after 66 not just to delay Social Security benefits, but to increase their earnings in order to be eligible for a higher calculated benefit? Would you consider the strategy in the future? Please share your thoughts in the comments below!
How We Deduct Earnings From Benefits
In 2021, if youre under full retirement age, the annual earnings limit is $18,960. If you will reach full retirement age in 2021, the limit on your earnings for the months before full retirement age is $50,520.
Starting with the month you reach full retirement age, there is no limit on how much you can earn and still receive your benefits.
Let’s look at a few examples. You are receiving Social Security retirement benefits every month in 2021 and you:
Are under full retirement age all year. You are entitled to $800 a month in benefits.
You work and earn $28,960 during the year. Your Social Security benefits would be reduced by $5,000 . You would receive $4,600 of your $9,600 in benefits for the year.
Reach full retirement age in August 2021. You are entitled to $800 per month in benefits.
You work and earn $63,000 during the year, with $52,638 of it in the 7 months from January through July.
- Your Social Security benefits would be reduced through July by $706 . You would still receive $4,894 out of your $5,600 benefits for the first 7 months.
- Beginning in August 2021, when you reach full retirement age, you would receive your full benefit , no matter how much you earn.
If you are eligible for retirement benefits this year and are still working, you can use our earnings test calculator to see how your earnings could affect your benefit payments.
Don’t Miss: Social Security 35 Year Rule
Special Rule As You Approach Full Retirement Age
If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age . If you will reach full retirement age in 2021, you can earn up to $4,210 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.
If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers “substantial services.” The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month . In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit.
What Happens If I Work And Get Social Security Retirement Benefits
You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.
- We use the following earnings limits to reduce your benefits: If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit.
For 2021 that limit is $18,960.
- In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age.
If you will reach full retirement age in 2021, the limit on your earnings for the months before full retirement age is $50,520.
Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.
Use our Retirement Age Calculator to find your full retirement age based on your date of birth.
Use our Retirement Earnings Test Calculator to find out how much your benefits will be reduced.
What counts as earnings:
Your benefits may increase when you work:
When youre ready to apply for retirement benefits, use our online retirement application, the quickest, easiest, and most convenient way to apply.
If you need to report a change in your earnings after you begin receiving benefits:
You May Like: Monthly Social Security Benefits
What About Taxes On Social Security
Keep in mind that Social Security benefits may be taxable, depending on your combined income. Your combined income is equal to your adjusted gross income , plus non-taxable interest payments , plus half of your Social Security benefit.
As your combined income increases above a certain threshold , more of your benefit is subject to income tax, up to a maximum of 85%. For help, talk with a CPA or tax professional.
In any case, if you’re still working, you may want to postpone Social Security either until you reach your full retirement age or until your earned income is less than the annual limit. In no situation should you postpone benefits past age 70.
D You Can Stop Working And Not Begin Receiving Your Retirement Benefits
We calculate your benefits based on your highest 35 years of earnings. If you stop working before you have 35 years of earnings, or you have low earnings for some years, this will affect your benefit calculation. However, if you wait to start benefits after you reach full retirement age, your benefits will increase for each month you do not receive them until you reach age 70. There is no incentive to delay filing for your benefits after age 70.
If you are not receiving your Social Security benefits when you turn 65, you will need to apply for Original Medicare three months before you turn 65. If you dont sign up for Medicare Part B when youre first eligible at age 65, you may have to pay a late enrollment penalty for as long as you have Medicare coverage.
Fact #: Social Security Provides A Guaranteed Progressive Benefit That Keeps Up With Increases In The Cost Of Living
Social Security benefits are based on the earnings on which you pay Social Security payroll taxes. The higher your earnings , the higher your benefit.
Social Security benefits are progressive: they represent a higher proportion of a workers previous earnings for workers at lower earnings levels.
Social Security benefits are progressive: they represent a higher proportion of a workers previous earnings for workers at lower earnings levels. For example, benefits for a low earner retiring at age 65 in 2020 replace about half of their prior earnings. But benefits for a high earner replace about one-quarter of prior earnings, though they are larger in dollar terms than those for the low-wage worker.
Many employers have shifted from offering traditional defined-benefit pension plans, which guarantee a certain benefit level upon retirement, toward defined-contribution plans s), which pay a benefit based on a workers contributions and the rate of return they earn. Social Security, therefore, will be most workers only source of guaranteed retirement income that is not subject to investment risk or financial market fluctuations.
Once someone starts receiving Social Security, their benefits increase to keep pace with inflation, helping to ensure that people do not fall into poverty as they age. In contrast, most private pensions and annuities are not adjusted for inflation.
Why Not Claim Early Rather Than Draw Down An Ira And Other Savings
Its conventional wisdom to delay tapping an individual retirement account, instead enabling it to grow tax deferred. Roughly 40 percent of beneficiaries claim reduced Social Security benefits at 62 or 63.
But many researchers say reversing the order living on retirement savings in the early years and holding off on collecting benefits is likely to increase monthly income over a lifetime.
One reason, experts say, is the roughly 77 percent boost in benefits a beneficiary receives by claiming at 70 rather than at 62.
Another is the difference in how I.R.A. withdrawals and Social Security benefits are taxed. Individuals pay the ordinary federal income tax rate on all I.R.A. withdrawals. But just 85 percent, 50 percent or none of their Social Security benefits are taxed.
The amount subject to tax depends on your provisional income, which includes half of benefits and 100 percent of nonbenefit income. The more I.R.A. income, the more likely you are to pay at a higher marginal rate and be taxed at the 85 percent threshold.
With this formula in mind, a new retiree should start I.R.A. withdrawals early, when the marginal rate is likely lower, said Laurence Kotlikoff, an economics professor at Boston University.
Consider a person who is due a $2,200 monthly Social Security benefit at full retirement age. Her $500,000 I.R.A. and $200,000 in other savings are expected to grow at an inflation-adjusted 2 percent a year.
Don’t Miss: How Do I Figure Out My Social Security Benefits
If You’ve Hit Full Retirement Age And Are Working Here’s What Happens
Finally, there are Social Security beneficiaries who reach their full retirement age and still work. The great news is that the retirement earnings test no longer applies in this scenario. Once you hit your full retirement age, no matter when you began taking Social Security benefits, you’ll be allowed to generate any amount of earned income without a dime of your Social Security benefits being withheld by the Social Security Administration.
Furthermore, any benefits that were withheld by early claimants in years where they earned too much will be returned to those beneficiaries in the form of a higher monthly payout once they reach full retirement age. With the exception of an early passing, you don’t lose withheld benefits from the retirement earnings test.
Fact #: Social Security Provides A Foundation Of Retirement Protection For Nearly Every American And Its Benefits Are Not Means
97% of the elderly either receive Social Security or will receive it.
Almost all workers participate in Social Security by making payroll tax contributions, and almost all elderly Americans receive Social Security benefits. In fact, 97 percent of the elderly either receive Social Security or will receive it, according to Social Security Administration estimates. The near-universality of Social Security brings many important advantages.
Social Security provides a foundation of retirement protection for people at all earnings levels. It encourages private pensions and personal saving because it isnt means-tested in other words, it doesnt reduce or deny benefits to people whose income or assets exceed a certain level. Social Security provides a higher annual payout than private retirement annuities per dollar contributed because its risk pool is not limited to those who expect to live a long time, no funds leak out in lump-sum payments or bequests, and its administrative costs are much lower.
Indeed, universal participation and the absence of means-testing make Social Security very efficient to administer. Administrative costs amount to only 0.6 percent of annual benefits, far below the percentages for private retirement annuities. Means-testing Social Security would impose significant reporting and processing burdens on both recipients and administrators, undercutting many of those advantages while yielding little savings.
Don’t Miss: Quickest Way To Get A Social Security Card
Social Security And Disability Eligibility
Also known as Supplemental Security Income , you can receive Social Security retirement benefits as long as youre at least 62 years old and have at least 40 work credits. Work credits are earned when you pay Social Security taxes on income you earned from a job or from self-employment. Youll be eligible to earn these benefits at the early retirement age or the full retirement age. The full retirement age varies depending on when you were born. For instance, the full retirement age is 66 if you were born from 1943 to 1954, according to the Social Security Administration . Full retirement age is 67 for anyone born after 1960, but you can opt for early retirement benefits at age 62.
For disability, the age requirements are quite different. You only need to be at least 18 years of age to qualify, and SSA guidelines require you to prove that:
- You cant do the work that youve done before
- You cant adjust to other work because of your medical condition
- Your disability has lasted or will last for at least one year or result in death
For example, if you are working in 2020 and making more than $1,260 a month, you wont be considered disabled.
How You Earn Work Credits
You earn one work credit for every three-month block that you work a job that pays into Social Security. You buy into Social Security through payroll taxes. For the year 2020, the SSA says that you must earn at least $1,410 per quarter to earn a single work credit, and $5,640 in a year to earn four work credits.
For example, a person who works 30 years at qualifying jobs could earn up to 120 work credits. Note that the number of credits you have beyond the requirement does not affect the amount of benefits you receive through this program.
Don’t Miss: How To Replace Social Security Card Fast
What Happens If You Work And Collect Social Security Income At The Same Time
Living expenses for seniors are on the rise. Medical care inflation has frequently outpaced annual cost-of-living adjustments in recent years, and debt levels for seniors have skyrocketed over the past two decades.
According to data from the Federal Reserve Bank of New York, persons aged 70 and older have seen their total debt burden increase by 543% to $1.1 trillion between 1999 and 2019. The news isn’t much better for seniors in their 60s, with the total debt burden rising by an unsightly 471% to $2.14 trillion over the same time frame.
Now more than ever, seniors need to maximize every channel of income possible, including Social Security.
The big question is: Can you collect Social Security benefits and work at the same time to double up on your income streams? The answer isn’t as clear-cut as you might think.