If you expect you will have substantial earnings after you
retire and you have not yet reached full retirement age, you may be able to
time your post-retirement earnings to prevent withholding of all or part of
your Social Security retirement benefit.
If you have retired and your spouse and/or child receives
benefits based on your Social Security record, any excess earnings you have may
reduce their benefits.
| | Planning for Earned Income in Retirement
If you're like a lot of people, retirement won't be the
world of gardening, golfing, traveling, and tennis you once envisioned. Rather,
retirement will mean relaxing and working. Maybe you've retired from your
"regular" job and started a business, or perhaps you want to work part-time
just to stay busy. However, if you work after you start receiving Social
Security retirement benefits, your earnings may affect the amount of your
benefit check.
Your earnings in retirement may increase your retirement benefit
Your monthly Social Security retirement benefit is based
on your lifetime earnings. When you become entitled to retirement benefits at
age 62, the Social Security Administration (SSA) calculates your primary
insurance amount (PIA) upon which your retirement benefit will be based. Later,
your PIA will be recalculated annually if you have had any new earnings that
might substantially increase your benefit.
Your earnings in retirement may decrease your retirement benefit
If you earn income over a certain limit by working after
you begin receiving retirement benefits, your benefit may be reduced
proportionately. This limit, known as the retirement earnings test exempt
amount, affects only beneficiaries under full retirement age. The benefit
reduction is based on your annual earnings and is not permanent. Even if your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced. How much is the retirement earnings test exempt amount?
In 2024, the annual exempt amount is $22,320 for beneficiaries under full retirement age. However, in the year you
reach full retirement age, a different limit applies. The limit in 2024 is
$59,520, which applies to earnings up to, but not
including, the month you reach full retirement age.
How much benefit is withheld if you exceed the annual
earnings limit?
If you're under full retirement age, $1 in benefits is
withheld for every $2 of earnings in excess of the annual exempt amount.
In the year you reach full retirement age, $1 in benefits
is withheld for every $3 of earnings in excess of the special exempt amount
that applies that year, but only counting money earned before the month you
reach full retirement age.
What kinds of earnings may affect your benefit?
Earnings that might reduce your benefit
- Wages you earned as an employee (counted for the taxable
year they're earned)
- Net earnings from self-employment (usually counted in
the year earnings are received)
- Other types of work-related income, such as bonuses,
commissions, and fees
Earnings that won't reduce your benefit
- Pensions and retirement pay
- Workers' compensation and unemployment compensation
benefits
- Prize winnings from contests, unless part of a
salesperson's wage structure, or entering contests is your "business"
- Tips that are less than $20 a month
- Payments from individual retirement accounts (IRAs) and
Keogh plans
- Investment income
- Income earned in or after the month you reach full retirement age
Other types of earnings may affect your benefit. If you
have additional questions about how the Social Security Administration defines
earnings, contact the SSA at (800) 772-1213.
Which benefits may be affected by excess
earnings?
Your own retirement benefit
Your Social Security retirement benefit may be reduced if
you earn income over the retirement earnings test exempt amount.
Benefits paid to your spouse or child
If you have retired and your spouse and/or child receives
benefits based on your Social Security record, any excess earnings you have may
reduce their benefits. In addition, any excess earnings they have may reduce
their own benefits but not your benefit.
Benefits paid to your survivors
If you die and a member of your family receives a
survivor benefit, that benefit may be reduced if the family member earns
money in excess of the retirement test exempt amount.
The earnings test is different in the first year of
retirement
Earnings from an employer
In the first year of retirement, the earnings test is
applied differently. Normally, the earnings test is based
on the amount of income you earned annually; however, in the first year of
retirement, the earnings test can be based on the amount of income you earned
monthly, if that would benefit you. You can receive a full Social Security
benefit check for any whole month in which your earnings don't exceed 1/12th of
the annual exempt amount.
Earnings from self-employment
If you're self-employed, the SSA also considers whether you
perform substantial services in your business. You will receive full benefits
for any month you're not substantially self-employed. In general, you're
considered to be substantially self-employed if you worked as a self-employed
person more than 45 hours in one month. If you work less than 15 hours in one
month, you will not be considered substantially self-employed, and you probably
will receive your full retirement benefit for that month. If you work between
15 hours and 45 hours a month, you may or may not be considered substantially
self-employed by the SSA, and your retirement benefit may be affected.
Questions & Answers
How does the SSA know how much you earn after you
retire? The SSA knows how much you earn because you are required to
estimate your earnings when you apply for Social Security benefits. Later, the
SSA will get information about your earnings from your IRS W-2 form (submitted
annually by your employer) or, if you are self-employed, from your annual
income tax return. The SSA also may ask you to send an earnings estimate
annually. In addition, if you think the earnings used to calculate your benefit
may be incorrect, contact the SSA at (800) 772-1213 so that your benefit can be
accurately calculated.
If you receive Social Security retirement benefits based
on your ex-spouse's Social Security earnings record, will your benefit be
reduced if your ex-spouse's benefit is reduced due to excess earnings? No. If you've been divorced for more than two years, your
benefits will not be reduced if your ex-spouse has excess earnings. The only
way your benefit will be reduced is if you have excess earnings.
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