Social Security: How Work Affects Your Benefits
When planning for retirement, income is undoubtedly your primary concern. Social security benefits are a fundamental element of retirement income, whether you have amassed a large retirement fund during your working years or not. If you are concerned that your social security income will not be enough to make ends meet, the United States Social Security Administration (SSA) will allow you to work while you are receiving your retirement benefits. However, in some cases your benefits may be reduced. Read on to learn how work will affect your social security retirement benefits.
Receiving Social Security Retirement Benefits
The federal government determines when American citizens are eligible to receive their Social Security retirement benefits, based on the year of the person's birth. Once you are eligible for benefits, you are able to choose when you would like the benefits to begin. If you choose to receive the benefits right away, you will receive a smaller amount in every check than you would if you delay the start of your benefits. Before making the decision, the SSA advises that you consider the following factors:
- Current cash needs
- Health and family longevity
- Any plan to work during retirement
- Other retirement income sources
- Anticipated future financial needs and obligations
- The amount of your Social Security benefits
Working While Receiving Social Security Benefits
You can work and earn as much as you wish while receiving your Social Security retirement benefits and ultimately, you will still receive your full benefit amount. If you work after full retirement age, which is between 65-67 and depends on the year you were born, you may keep all of your benefits no matter how much you earn. If you work after age 62 and before full retirement you may experience a decrease in the amount of Social Security benefits you are receiving during that period. However, performing work between 62 and full retirement age will not reduce the total value of your lifetime benefits. In fact, your future benefit amount will probably increase. The benefit increases because while you are still working, you continue to contribute to the Social Security fund and this increases the amount of benefits you are entitled to receive after full retirement. If you live outside the U.S., different rules may apply.
How Much You Can Earn and Still Receive Social Security Benefits
The limit on how much you can earn between age 62 and full retirement age and still receive benefits is subject to yearly fluctuation. In 2014, if you earned more than $15,480 you would probably face a decrease in your benefits. For example, if you were 62 (the entire year of 2014), entitled to $800/month in benefits, and earned $23,480 for the year, your Social Security benefits would be reduced by $4,000. To determine how much your benefits will be reduced, you deduct the maximum allowable income of $15,480 from the amount actually earned, here $23,480 - $15,480 = $8,000, to find the amount you earned over the limit. Then, you deduct $1 for every $2 you earned over the limit, here $4,000, and then deduct that amount from your total benefits for the year. The calculations vary according to your age and the amount of benefits you are receiving monthly.
What the SSA Considers Part of Your Income
If you are working for someone else, the SSA counts your wages toward the $15,480 earning limit. Wages are counted when they are earned, not when they are paid. Earnings such as accumulated sick or vacation pay and bonuses are considered wages and counted when you earn them. If you are self-employed, SSA counts only your net earnings, and income counts when you receive it. They do not count other income such as:
- Government benefits.
- Investment Earnings.
- Capital Gains.
Planning for retirement is important, and you should check with the SSA to ensure you are estimating your retirement income properly. If you wish to work after age 62 but before full retirement age, your total benefits will not decrease but your Social Security retirement income during that period may be reduced.