The Social Security system allows you to work while you receive retirement or survivor benefits. But if you are below full retirement age, which is now 65 to 67, there are limits to how much income you can receive from other sources without a reduction in your Social Security benefits. Some income is not counted toward the limits. Full retirement age is 65 if you were born in or before 1937. It progresses in 2 months increments to 66 years of age for people born between 1943 and 1954. For people born in 1960 or later, full retirement age is 67.
What Income Counts
Social Security counts income earned from working. If you work for an employer, your monetary compensation for work you performed counts toward your earnings limit. If you are self-employed, Social Security counts your net earnings after operating expenses. When you work for someone else, your wages count when earned, not when you receive them from the employer. If you are self-employed, your income counts when it is paid to you rather than when you earned it.
Some Income Isn't Counted
If you make contributions to an employee retirement plan from your wages, Social Security doesn’t count that money toward your income limit unless the employer includes it in the gross wages reported in Box 1 on your Form W-2. Social Security also doesn’t count unearned income from sources such as unemployment compensation, other government benefits, investments, capital gains, interest, annuities, IRA distributions, pensions or annuities.
In 2018, if you decide to collect reduced social security benefits before you’ve reached your full retirement age, the maximum you can earn in addition to your benefits is $17,040 per year. If you go over that limit, $1 for every $2 you earn above the limit is deducted from your social security benefit.
If you reach your full retirement age during 2018, you can earn up to $45,360 in the months before you take full retirement. If you go over this limit before the month you retire, $1 for every $3 you earn is deducted. Beginning with the month you reach your full retirement age, there are no limits on what you can earn.
The rule is different for the year you retire. If your earnings will be over the limit for the year, but you will be retired for part of that year, you will receive your full Social Security benefits starting with the first whole month you are retired, regardless of your earned wages for that year.
If you’re going to go over your income limit in any year, you should notify the Social Security Administration immediately. The excess will be deducted as soon as the SSA becomes aware of the additional earnings. For example, if you’re 62 with a retirement benefit of $1,000 a month, and you earned $4,000 above the $17,040 limit, your benefit would be reduced by $2,000. The penalty would be applied to your next two $1,000 benefit payments. So you would receive no Social Security income for two months. Your benefit payments would resume in the third month.
Money Comes Back
If you lose Social Security benefits because you earned too much, the money isn’t gone forever. The lost benefits will be returned when you reach full retirement age. The money will be repaid to you in equal monthly installments spread over a span of 15 years.