Earning too much money from working after you start Social Security retirement benefits can cost you money. This is counterintuitive, but it’s due to Social Security and tax rules that can trigger benefit reductions or increase your tax liability. Taking these rules into account will help you plan your retirement finances so that you maximize the money you end up with.
Full Retirement Age
Once you reach full retirement age for Social Security benefits, money you earn working doesn't impact your benefit amount.. Until you reach full retirement age, your benefits may be reduced if you work. For people born before 1955, full retirement age is 66. This is scheduled to gradually increase to 67 for people born in 1960 or later.
Benefits and Work
If you start benefits between the month you turn 62 and the month you reach full retirement age, the Social Security Administration will deduct one dollar from your annual benefit amount for every two dollars you make above an annual limit. As of 2013, this limit is $15,120 or $1,260 per month. To figure how much you can work and still get benefits, double your annual benefit amount and add the $15,120 limit. Suppose your annual benefit is $15,000. You can make at most $30,000 plus $15,120 or $45,120. At this point your benefit amount reaches zero.
You might decide to start early Social Security benefits anytime during the year. If so, the SSA prorates the amount you are allowed to earn before imposing a benefit reduction. Suppose you start benefits in July. Income for the first six months isn't counted. You can make an average of $1,260 per month for the months you get Social Security without losing any of your benefit. A different limit applies for the calendar year you reach full retirement age. You can earn up to $3,340 per month on average for the months prior to reaching full retirement age without losing any benefits. If you make more, you lose one dollar for every three dollars above the limit. Starting the month you reach full retirement age, there is no income limit.
Social Security Income
The SSA counts only earnings from wages, salary, other employer-paid compensation and net earnings from self-employment when figuring out if your benefit amount will be reduced. Annuities, pensions and retirement plan income are not included. Interest earnings and profits from investments are also not counted.
You'll eventually get any money you lose due to earning too much from work while receiving early Social Security benefits. Once you reach full retirement age, your benefit amount will be increased so that you recover this money over time. However, starting retirement benefits early means you get them for a longer period of time. To compensate, the SSA will permanently lower your monthly benefit. The amount of the reduction depends on how many months early you start benefits. If you start the month you turn 62, a maximum reduction in your monthly benefit of 25 percent applies. This means you will only get 75 percent of the monthly payment you would get if you waited until full retirement age to start receiving benefits.