When it comes to Social Security benefits one of the top questions that we get asked at the ARIES Foundation is “Can I work and still collect Social Security?”

On the face of it, it would seem like working while collecting social security should be something that anybody would be able to do, after all most people have contributed more to social security then they have their own 401k retirement plan. However, the social security administration does put restrictions on how much you can earn while collecting your social security benefits. There are a lot of complexities and rules on what you can and can’t do, but I think we can break it down into 4 concepts for working while collecting social security.  the four points of the compass as we call them when you work and you collect social security

• Earnings Limits

·     

• Type of Income Generated

·     

• What Happens the Year you File

·     

• What Happens at Full Retirement Age (FRA)

EARNINGS LIMITS                                                                                                                                                              The social security administration sets earning limits for any year you are working and collecting prior to your FRA ($18,960 in 2021), if you exceed these limits you have to give back part of the funds that you've received at a clip of $1 back for every $2 earned over the limit. In the calendar year of your Full Retirement Age (author’s note: FRA is 67 for anyone born after 1960) that number jumps to $50,520 and the penalty is $1 for every $3 over the limit. If you wait to your FRA to collect then there are no earnings limits. You can earn as much as you want and still collect your full benefit amount.

TYPES OF INCOME

What counts as earnings or income; wages, when they're earned as an employee, if you own a business, then the business earnings when they're received. Note: if you make a contribution to a retirement plan and that amount is included in gross wages that also counts as income for the purposes of the limits. What isn't counted? Government benefits , investment earnings, interest income, pension payments, annuity payments, and capital gains from the sale of securities.

4 SCENARIOS

• Scenario #1 - you continue to work full time while collecting social security
• Scenario #2 - you're working part time
• Scenario #3 - what happens in your year of full retirement, if you have been receiving benefits for a while certainly before the year of full retirement
• Scenario #4 – how does it look in the year of full retirement, if you file during that year

Let’s assume that you are currently age 63 and you started taking social security last year at age 62.

Scenario #1 -You earn $30,000 a year and your cap is $18,960 per year, so

you're over your cap. The overage is $11,040 (30,000-18,960). Since you have

attained FRA yet, your benefits are reduced by one dollar for every two dollars

earned over that limit. Your benefits will be reduced by 50% of $11,040.

Remember it’s $1 for every $2 over the limit.

$11,040/2 = $5520/12 = $460.

$460 is how much will be deducted from your monthly social security benefit as a penalty.

Ex. If your monthly benefit was $1500 - $460 = $1,040 is what you would receive.

So what happens when you first file for your social security benefits. Using the example above let's add the following assumption – you turn 62 on the 27th of August.

You begin drawing your benefits on the 1^st of September,

again using an annual salary of $30,000 per year then you would have earned

approximately $20,000 so far. The earnings limit is $18,960 (monthly that

equals $1580) First, any earnings prior to your starting benefits Do Not Count

against you, but you still have to do some math. Convert your limits to a

monthly basis – that’s the $1580, then your monthly income ($30,000/12 =

$2500). So you end up over the limit by $920, so the penalty will be applied to

your monthly benefit.

Scenario #2 - instead of working full time you change to a part-time job, but the rest of your details remain the same; age 62, born on 8/27.

You start drawing benefits starting on 9/1 but because you have

moved to a part-time position your income is now $1500/month. For any month

that you earn less then the monthly limit ($1580) you are eligible to collect

all of your benefit amount. If you happen to work more in a month for whatever

reason, seasonal, holidays, etc..then if you be over the limit for that month.

Scenario #3 – You are collecting in the year of your FRA. For

this example we’ll say that FRA is at age 66. You have earnings of $92,000 and

let’s make your date of birth 11/1. And you started collected at age 65 and

have  a benefit of $1580 per month.

The annual earnings limit is now $50,520. Again, break it down

into a monthly amount ($4,210). Do the same for your monthly earnings ($7,667) The

overage is $7,667 - $4,210 = $3,457. But because you are in the year of your

FRA your benefits are reduced by $1 for every $3 (instead of $2) of the monthly

limit. The calculation will give you a reduction of $1,152 on your monthly

benefit.

$1,580 - $1,152 = $437 social security benefit in the year of FRA

Scenario #4 – Obtaining FRA. Once you reach your Full Retirement Age (born in 1964 it is 66. Born 1955 -1959 add 2 months for each year away from 1954. Born 1960 or after it is 67) there are no limits on your earnings. You can earn as much as you want and still collect your full benefit amount.

Now there are other factors that come into play besides penalties, taxes and surcharges that can affect your benefit amounts as well, but that we will discuss in our next blog post.

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