If you've claimed your Social Security retirement benefits and continue working or return to work before you reach your Full Retirement Age (FRA), you should be aware of the earnings test.
Say you've claimed your Social Security at 62 or soon thereafter and either continue working or return to work at a significant salary before you reach your FRA.
Since you haven't yet reached your FRA you may face the earnings test, which will cause a reduction in your Social Security benefits until you reach that FRA which would be somewhere between age 66 and 67, depending on what year you were born.
For 2021, the earnings threshold that triggers the earnings test is $18,960 for those under their FRA.
During the year you reach your FRA the earnings threshold that triggers the earnings test is $50,520 for 2021, up until the month of your birthday.
Keep in mind these earnings only refer to income from your job and/or self-employment income if you are a business owner.
The good news is that even if these Social Security benefits get reduced, the benefit amounts that you give up now, get included when the Social Security Administration recalculates your monthly benefits once you reach your FRA, so you don’t really lose the money.
Here’s the main rule for the earnings test:
If you haven’t reached your FRA, the Social Security Administration will withhold $1 for every $2 in earnings you make above the earnings threshold which is $18,960 for 2021.
In the year you reach your FRA, the Social Security Administration will withhold $1 for every $3 you make over the earnings threshold which is $50,520 for 2021, until the month you reach your FRA, which will be the month of your birthday.
As an example say you’re 65 and you are receiving Social Security retirement benefits of $1,000 a month or $12,000 a year in 2021.
Meanwhile, you’re offered a job and you take it earning $28,960, which is $10,000 more than the $18,960 limit for 2021 for those who have not reached their full retirement age.
According to the Social Security Administration, you would need to return one dollar for every two dollars you earned above the $18,960 threshold. Since you’re $10,000 above the threshold this means you would have to return half of the $10,000 to the Social Security administration, which would be $5,000.
So in this example, your $12,000 in Social Security benefits would be reduced by this $5,000 that you had to return, which means your Social Security would drop from the $12,000 to $7,000.
It’s important to understand that if you are above the earnings threshold amount before you reach your FRA, and you don’t notify the Social Security Administration so your benefits can be reduced, you will be required to return the overpayment. Otherwise it will be withheld from your future Social Security retirement benefits.
So if you’re earning enough where it puts you over these thresholds let the Social Security Administration know by calling 1-800-772-1213.
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