Social Security Earnings Tests

As you know, you can receive Social Security retirement or survivors benefits and continue working.  If you happen to be less than Full Retirement Age (FRA) and you earn more than certain amounts though, your benefit will be reduced.  (Note: these reductions are not really lost, your benefit will be increased at FRA to account for those benefits withheld due to earlier earnings.  This later increase does not, however, apply to spouses and survivors who are receiving benefits that are reduced because of work.)

Earnings Tests

If you’re at or older than FRA when you begin receiving retirement or survivors benefits, you may earn as much as you like and your benefit will not be reduced.  If, however, you are younger than FRA, your benefit will be reduced $1 for every $2 you earn over $14,160 before the year of FRA.  The benefit will be reduced by $1 for every $3 you earn over $37,860 in the year of FRA, up until the month you reach FRA. (2010 figures) For example, let’s say your benefit is $700 per month ($8,400 for the year) and you are age 63.  You work and earn $20,000 during the year, which is $5,840 more than the earnings test for your age.  The Social Security Administration would withhold a total of $2,920 from your benefit ($1 for every $2 over the limit).  This is done by withholding the benefit for five months, January through May – for a total of $3,500 being withheld.  Beginning in June you’ll receive your full $700 benefit, and in January of the following year you’ll receive $580 extra for the additional amount that was withheld above the $2,920. Now, if this year is the year you’ll reach FRA – for example in June, and your earnings through May were $40,000 ($2,140 more than the limit), your $8,400 benefit would be reduced by $713, which is accomplished by withholding your first two checks of the year, and the additional $687 will be paid to you in January of the next year. Hope this clears up the very confusing way that earnings tests work with Social Security benefits.  As always, leave a question (or call me) if you are still uncertain.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual

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