If you claimed your Social Security retirement benefit and continued to work or returned to work before you reach full retirement age (FRA), you need to know about the income test.
As more young boomers work longer, they may encounter the Social Security income test without knowing it. Let’s say you asked your Social Security at age 62 or shortly thereafter, and continued to work or returned to work for a substantial salary at 65. Since you haven’t met an FRA between 66 and 67, you will have to face test earnings.
If you make more than a certain amount, report your expected income to Social Security right away.
“There will be a limit until you reach retirement age,” said Nancy Altman, president of Social Security Works, a nonprofit advocacy group. She is the author of several books, including The truth about social security.
For 2021, that limit is $ 18,960 for their FRA followers. During the year you reach your FRA, the income limit is $ 50,520 for the year 2021, until the month of your birthday when you transfer your FRA. If you are earning more than you expected at work, let the Social Security Administration (SSA) know right away by calling 1-800-772-1213. This cannot be done online.
If you are receiving Social Security retirement benefits and also earn more than certain thresholds outlined above while working, Social Security will keep some of your Social Security retirement benefits, but will credit you later.
Additionally, if you earn more than the allowable amount before you reach your FRA and you do not notify SSA so that your benefits can be adjusted, you will be required to return the overpayment. level. If that happens, you will receive a letter from the SSA detailing the amount you owe. If you don’t pay it back, it may be deducted from your future Social Security retirement benefits. “Whenever you get any official mail and you owe money, if you don’t have that money in your bank account, it can be very scary,” says Altman.
(However, if you asked for Social Security and then changed your mind, you can too suspend your Social Security retirement benefits as long as you are full retirement age and under 70 years old. You will receive delayed retirement credits for each month your benefits are suspended and that will result in you paying your benefits higher.)
Here is the main rule for the income test: If you have not yet reached your FRA, the Social Security Administration will withhold $ 1 for every $ 2 of income you have above the annual limit, which is $ 18,960 for 2021. In the year you reach to your FRA, the SSA will withhold $ 1 for every $ 3 you earn within the annual limit of $ 50,520, the limit for the year 2021 until the month you reach your FRA.
It’s important to know what your full retirement age is. If you were born between 1943 and 1954, the full retirement age is 66. If you were born after 1954, your full retirement age will increase from 66 to 67 years.
• If you were born in 1955, your FRA is 66 and 2 months.
• If you were born in 1956, your FRA is 66 and 4 months.
• If you were born in 1957, your FRA is 66 and 6 months.
• If you were born in 1958, your FRA is 66 and 8 months.
• If you were born in 1959, your FRA is 66 and 10 months.
• If you were born in 1960 or older, your FRA is 67.
If you are working, only your salary from your job counts toward Social Security’s earnings limit. If you are self-employed, the SSA only counts your net income. The SSA does not count income, such as other government benefits, investment income, interest rates, pensions, annuities, and capital gains.
Just because there is an income limit until you reach your FRA doesn’t mean you can’t work and make money while getting Social Security retirement benefits. It means you have to be aware of the limits. Even if some of your Social Security retirement benefits are withheld, in the long run, making more money could be in greater benefit to you once you reach your FRA.
Here’s an example: Let’s say you’re 65 years old and you’re getting Social Security retirement pension of $ 800 a month or $ 9,600 a year in 2021. Meanwhile, you are offered a job in in 2021 you get it and make $ 28,960, which is $ 10,000 more than the $ 18,960 limit for 2021, for those who haven’t reached their FRA yet.
Under the SSA, your Social Security retirement benefits are reduced by $ 5,000, which means $ 1 for every $ 2 you earn over the limit. In this case, you will receive $ 4,600 out of the $ 9,600 that you initially qualified for. The calculation is $ 9,600 – $ 5,000 = $ 4,600.
There are special rules detailed for the first year you claim benefits before coming to your FRA, says Russell Gloor, the AMAC Foundation’s national Social Security advisor. “If you’ve reached your FRA, there’s no income limit.”
If you enjoy working, don’t let the income test stop you. Jason Fichtner, senior lecturer, economics and finance department, Johns Hopkins University’s School of Advanced International Studies, said: “If you want to work while on benefits 62 or older FRA, then let’s work. “Don’t let the RET (retirement income test) discourage you. Proactively contact SSA directly if you are both receiving Social Security retirement benefits while working. “Describe your specific situation and report any earnings you expect from the job. SSA will be able to make benefit adjustments within 30 days of your call,” Fichtner said. If you believe you are still getting more than your qualifying amount, call back to confirm.
It is important to predict earnings and report them in advance, if possible. “It’s important to note that even if benefits are reduced by working while receiving benefits age 62 or older, you will receive work credit and those benefits will be recalculated. your monthly benefit amount when you reach the FRA. Reduced benefits are ‘retained.’ The RET (retirement income test) is not a tax, ”said Fichtner.
One final warning: Your employer and the Internal Revenue Service report income to SSA each year. If you haven’t reported your expected earnings, after SSA has this information, and if you’ve been overpaid, you’ll get a letter letting you know.
In short, just when you suspect you might be getting too much benefits from your work income, call. It is the best way to prevent receiving excessive payment correspondence from SSA in the future.
Harriet Edleson is the author of the forthcoming book, “12 Ways to Retire Less: Planning an Affordable Future” (Rowman & Littlefield, May 2021). Former AARP editor / editor / producer, she writes for The Washington Post’s Real Estate.