Q: I started Social Security benefits in 2007 at age 62, but my retirement accounts have lost so much of their value that I’m going back to work. Will my benefits be reduced?
A: You can work while you receive Social Security benefits. When you do, your benefits may be reduced if you earn more than certain limits. But after you reach full retirement age, the Social Security Administration recalculates your benefits and it will be increased to account for the benefits withheld due to excess earnings. The work you do now could mean a higher benefit for you in the future, and that will be important in helping you to afford health care and other big cost increases later on.
Your earnings from work will reduce your benefits if you are under your full retirement age and the earnings are more than the annual limit. The age at which people become eligible for full retirement benefits has been gradually rising. The full retirement age for people born from 1943 through 1954 (which includes you) is 66.
If you are under full retirement age for all of 2009, the Social Security Administration will withhold $1 in benefits for every $2 in earnings over $14,160 for the year or $1,180 per month. People who turn full retirement age in 2009 may earn more. The Social Security Administration will deduct $1 in benefits for every $3 over $37,680 for the year or $3,140 per month. The amount that you are allowed to earn is adjusted annually. Once you reach full retirement age, you may receive your benefits with no limit on the amount you can earn.
The Social Security Administration adjusts the amount of your benefits based on what you estimate that you will earn. If you go back to work, let the Social Security Administration know right away. If other family members get benefits based on your work, your earnings may reduce their benefits too.
If you do return to work, it is possible that your earnings could subject a portion of your Social Security benefits to taxation. If this happens, you could wind up with only a small gain, or even lose money after paying the increased tax on earnings and Social Security benefits. Before taking on work to earn extra income, calculate the tax cost. A good tax guide like J.K. Lasser’s Your Income Tax contains worksheets to help you do this. Tax guides can often be found in many public libraries, or visit www.irs.gov for more information.
Finally, even though the full retirement age is rising, the eligibility age for Medicare is still 65. It’s important to apply for Medicare three months prior to turning age 65. Failure to enroll in Medicare at age 65 might result in costly premium penalties.
To learn more about how work affects your benefits, see the publication “How Work Affects Your Benefits,” SSA Publication No. 05-10069. You can find it at www.ssa.gov or by calling toll free at 1-800-772-1213.