How work can affect your Social Security
Dear Savvy Senior
I’m looking at retiring sometime this year and starting my Social Security benefits, but would also like to work part time. Will this affect my benefits, and if so, how much?
You can collect Social Security retirement benefits and work at the same time, but depending on how old you are and how much you earn, it can cost you temporarily. Here’s what you should know.
Social Security says that if you’re under your full retirement age (which is 66 if you were born between 1943 and 1954; if not, see ssa.gov/pubs/ageincrease.htm to find your full retirement age) and are collecting benefits, then you can earn up to $14,160 in 2011 without jeopardizing any of your Social Security if you don’t reach your full retirement age this year. But if you earn more than the $14,160 limit, you’ll lose $1 in benefits for every $2 over that amount.
In the year you reach your full retirement age, a less stringent rule applies. If that happens in 2011, you can earn up to $37,680 from January to the month of your birthday with no penalty. But if you earn more than $37,680 during that time, you’ll lose $1 in benefits for every $3 over that limit. And once your birthday passes, you can earn any amount by working without your benefits being reduced at all.
Wages, bonuses, commissions, and vacation pay all count toward the income limits, but pensions, annuities, investment income, interest, and government or military retirement benefits do not. To figure out how much your specific earnings will affect your benefits, see the Social Security Retirement Earnings Test Calculator at ssa.gov/OACT/COLA/RTeffect.html.
It’s also important to know that if you do lose some or all of your Social Security benefits because of the earning limits, they aren’t lost forever. When you reach full retirement age, your benefits will be recalculated to a higher amount to make up for what was withheld. For details and examples of how this is calculated, see ssa.gov/retire2/whileworking3.htm.
You also need to factor in Uncle Sam. Because working increases your income, it might make your Social Security benefits taxable. Here’s what the IRS says. If the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits is between $25,000 and $34,000 for individuals ($32,000 and $44,000 for couples), you have to pay tax on up to 50 percent of your benefits. Above $34,000 ($44,000 for couples), you could pay on up to 85 percent, which is the highest portion of Social Security that is taxable. About a third of all people who get Social Security have to pay income taxes on their benefits.
Savvy Tips: For more information on how working can affect your Social Security see ssa.gov/retire2/whileworking.htm and ssa.gov/pubs/10069.html, or call the Social Security helpline at 800-772-1213 and ask to receive a free copy of publication number 05-10069, “How Work Affects Your Benefits.” And for information on Social Security taxes call the IRS at 800-829-3676 and ask for their free publication 915, “Social Security and Equivalent Railroad Retirement Benefits,” or see www.irs.gov/pub/irs-pdf/p915.pdf.
Jim Miller is a contributor to the NBC “Today” show and author of The Savvy Senior book. Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit http://SavvySenior.org.
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