Q & A: April/May 2020

Q & A: April/May 2020

How Much May I Earn in the Year I Turn Full Retirement Age?

Q:  I turn 66 in August of next year, and plan to start Social Security retirement benefits.  How much may I earn in 2021 without reducing my benefits?

A:  It depends on whether you can wait just a little bit longer to start benefits.  The Social Security retirement age for full, unreduced benefits is rising, and because you were born in 1955, your full retirement age is not 66, but 66 and 2 months.  You would hit that age in October 2021.  When you begin retirement benefits during or after the month that you reach your full retirement age, 66 and 2 months, your earnings no longer reduce your benefits no matter how much you earn.

The same is not true when you start benefits sooner than your full retirement age.  There’s a special earnings limit for the year in which you turn full retirement age.  In 2020, that limit is $48,600 (it may be slightly higher in 2021).  If your entire annual earnings will be under this amount by the time you file in 2020, then you should be OK to start benefits in August.  But if you earn more than that, this is one of those times when it will be worth the wait.

Here’s an example of how it works:

Assume you start Social Security benefits in August of 2021, and you are entitled to a monthly benefit of $1,500.  Let’s assume the 2021 earnings restriction for individuals turning full retirement age will be $50,000.  Assume that you work and earn $70,000 during the year and you receive $40,833 through July.  Your earnings through July are $9,167 in excess of the limit ($50,000-$40,833 = $9,167).  Your Social Security benefit would be reduced by $1 for every $3 over the limit or $3,055.60 ($9,167 divided by 3 = $3,055.60).  Your excess earnings would completely eliminate your benefits for August and September and the balance of $55.60 would come out of your October check.

The rising eligibility age will trip up the unsuspecting.  In addition to the fact that your earnings would reduce your benefits temporarily, your benefits would be permanently reduced from the full amount for starting two months early.  Plan to file your claim for benefits in October 2021 or later.

To learn more about getting benefits while working, visit the Social Security website at www.SSA.gov.