THINKING RETIREMENT – ANDY LANDIS – You plan to work in retirement—or get a job offer you can’t refuse. How is your Social Security affected? There are three sets of rules covering work income while you get Social Security:
- One set while you are under Full Retirement Age (FRA, currently 66)
- One for the year you turn FRA
- One while you are over FRA
(Today we’ll ignore a fourth set of rules covering work for those getting disability payments.)
Under Full Retirement Age – Consider my friend “Joe.” He retired early with sound finances, and started his Social Security at 62. His payment was only 75% of his payment at FRA—$1,500 a month instead of $2,000–but he was fine with that.
Now he works at a hardware store two days a week, basically because he loves it. Joe’s earnings are under the Social Security limit of $15,480 for 2014. Therefore he gets all his paychecks and all his Social Security, with no penalty for working.
Now let’s say his earnings are $19,480 in 2014, $4,000 over SSA’s limit. $1 is withheld from his Social Security for every $2 his earnings exceed the limit. So half of $4,000, or $2,000, must be withheld from Joe’s Social Security this year. In practice, Joe’s payments stop until $2,000 is withheld, then his payments restart for the remainder of the year.
Has Joe come out ahead? You bet. He gets all his paychecks for the year ($19,480 minus withholding), plus he gets $16,000 from Social Security ($1500 x 12, minus the $2,000 work penalty). Not a bad haul.
Joe also gets a small raise each year, when SSA automatically recomputes his payments, taking into account the new earnings on his record.
Turning Full Retirement Age – In the year Joe turns 66, he gets a quadruple bonus:
- A higher work limit
- Only earnings in the months before his birth month will count
- Only $1 for every $3 over the limit will be withheld
- A permanent raise
In 2014 the work limit for those turning 66 is $41,400. Joe’s earnings, at about $20,000, would be too small to count, so he would get full Social Security payments from January on.
Joe also gets a raise when he turns 66. His months of early filing are re-counted, dropping out any months that were withheld for the work penalty. Joe had 8 payments withheld, so he gets a raise from $1500 a month to $1566 a month, as if he filed 40 months early instead of 48.
Over Full Retirement Age – Starting with the month you reach your FRA, there is no penalty for current work. You can earn all you want and get full paychecks plus full Social Security.
The fine print
These same work rules apply no matter how you get your Social Security—as a retired worker, a spouse, a former spouse, a widow(er), or a child. (Exception: if you get disability benefits, special work rules apply http://ssa.gov/pubs/EN-05-10095.pdf.)
Work or other outside income can make some of your Social Security income-taxable. See this IRS publication, www.irs.gov/pub/irs-pdf/i1040.pdf pages 28-29.
Find SSA’s publication covering work issues here. http://ssa.gov/pubs/EN-05-10069.pdf.
All this is covered at more length in my book. http://www.amazon.com/Social-Security-Edition-Explains-Benefits/dp/1499255233/ref=sr_1_2?ie=UTF8&qid=1402006964&sr=8-2&keywords=landis+social+security But always consult SSA about your personal situation.
And as always, keep on planning.