If you’d like to know how much you can earn while on Social Security, you’re may be asking two different questions. The first question involves how much you can earn in retirement benefits from Social Security. The second question involves how much money you can earn in addition to Social Security benefits.
Question 1: Briefly, your Social Security benefits are calculated according to the number of years you worked and how much you paid into the Social Security system before claiming retirement income. You can check your Social Security income credits and estimate your retirement benefits by visiting the Social Security website and My Social Security Account.
Question 2: If you want to continue earning income from other sources after you’ve claimed Social Security retirement benefits, you’ll need to check Social Security’s limit on earned income each year. In 2016, the earned income limit for Social Security retirement beneficiaries is USD 1,310 per month or USD 15,720 per year. If you earn more money than the earned income limit in the year, your retirement benefits are reduced USD 1 for each USD 2 over the stated limit.
Let’s look at each of these questions concerning how much money you can earn while on Social Security.
Social Security Retirement Benefits
If you’re receiving Social Security retirement benefits, your monthly benefit might not pay for everything you need:
SSA reports that the maximum monthly retirement benefit is USD 2,634 for people claiming benefits at Full Retirement Age (FRA).
It’s possible to earn more from your Social Security benefits by waiting past FRA for your birth year.
In 2016, people born in 1954 or earlier years reach FRA at age 66.
The average Social Security monthly benefit is USD 1,341 in 2016. According to the SSA.gov website, the average retiree says he or she needs about 50 percent more income in addition to Social Security retirement benefits. You might need additional income to retire in comfort.
One of the ways to avoid the cash crunch in retirement involves saving today. A variety of tax-deferred or tax-favorable retirement plans are available to all Americans. Your employer may offer a 401(k) or other retirement plan to help you save for tomorrow. If you’re close to FRA or you’ve reached Social Security FRA, you can continue working to bank today’s higher income while increasing your Social Security lifetime earning average. This strategy can thereby increase your Social Security retirement benefits during your retirement years.
When you claim Social Security retirement benefits is an important consideration. If you claim early retirement benefits at age 62, you’ll receive a lower monthly benefit.What’s more, if you continue to earn income above the earned income limit of USD 15,720, your Social Security benefits will be reduced on a USD 2:1 basis. The benefits reduction applies to the years you’re working.
Social Security Full Retirement Age
SSA bases retirement benefits calculations on your FRA. It’s possible to claim early retirement benefits at age 62. If you continue to earn money in addition to your Social Security retirement benefits, these benefits are subject to earned income limit penalties.
If you wait until your 70th birthday to retire, your Social Security retirement benefits continue to accrue. SSA uses your 35 best earnings years to calculate your monthly retirement benefit. As long as you’re healthy and your income is high enough, it can make good financial sense to wait past FRA to claim retirement benefits. Waiting until age 70 can add up to 30 percent to your retirement benefit.
Social Security adds no additional earnings credits to your account past age 70.
Earned Income Penalties in Early Retirement
Until you’re at Social Security FRA, SSA subtracts money from your monthly benefit you if earn more than a certain income threshold per year. This year, the earned income limit is USD 15,720. The earned income limit changes each year. Historically, the earned income limit has increased over time.
Let’s say you’re 64 years old and considering early retirement now:
Social Security calculations say you’ll receive a USD 866 per month benefit. This early retirement benefit is less than if you wait until age 66, your Full Retirement age.
You realize that part-time income could provide enough to pay for your modest lifestyle. You identify a job that will pay about USD 21,000 per year.
Your financial adviser explains part-time income at this level will push you over the Social Security earned income limit this year. You’ll lose a dollar for every two you earn above USD 15,720.
This penalty means that you’d lose money by working in early retirement and permanently receive a lower monthly benefit because you claimed retirement benefits before reaching FRA.
Unfortunately, Social Security doesn’t automatically withhold a small amount of money from your monthly retirement check if you exceed the earned income threshold. SSA withholds monthly retirement checks until you’ve paid for the reduction in full.
The manner in which SSA calculates your earnings above the earned income limit is complex. Read more about Social Security earnings limits (“How Work Affects Your Benefits”) at https://www.socialsecurity.gov/pubs/EN-05-10069.pdf before taking the course of action.
SSA Special FRA Rule
If you requested early Social Security retirement benefits and you’re receiving these benefits at Full Retirement Age, a higher earned income limit applies in that calendar year:
If you’re at FRA this year, you’re allowed to earn up to USD 3,490 in a single month without any loss of retirement benefits until the month you reach FRA.
In the month your FRA occurs, you’ll lose USD 1 for every USD 3 above the earned income threshold.
At FRA, you’re allowed to earn more. SSA says you’re eligible to earn any sum without penalties.
If you’re self-employed, you’re allowed to receive full monthly benefits in the first retirement year if you didn’t perform substantial services.
This SSA term looks at the time you spent in performing work. If you worked greater than 45 hours in a month (or at least 15 hours up to 45 hours in a skilled line of work), you performed substantial services.
If you received income from residual business and didn’t perform substantial services, you’re not at risk of reduced benefits.