Q: If I start Social Security this year how much am I allowed to earn? I’ll turn age 66 in November. I’m currently working in a job that pays $52,000 per year plus health insurance.
A: The answer depends upon whether you start your benefits before or after your full retirement age — which in 2017 is 66. When you start Social Security benefits before your full retirement age, you will be subject to the Social Security earnings test. The earnings test can cause Social Security to withhold your benefits if you earn more than the annual exempted amount. In addition, your initial retirement benefit will be permanently reduced, because you started Social Security prior to your full retirement age. It pays to wait until 66. Here’s why:
In 2017, you are allowed to earn $44,880 or ($3,740/mo) in the months prior to full retirement age without any reduction to your benefits. If you earn more than that, Social Security will withhold $1 in benefits for every $3 over that amount.
If you start Social Security benefits too soon, prior to your full retirement age, your benefits may be withheld by as much as $2,373.30 due to the earnings test. That’s because no matter when you receive your wages in 2017, Social Security will assume that the full $52,000 of your 2017 earnings occurred prior to November. Your earnings in excess of the $44,880 would be $52,000, less $44,880 or $7,120. Social Security will withhold $1 in benefits for every $3 in excess earnings. The $7,120 is divided by 3 and $2,373.30 will be withheld from your benefits starting the beginning of the following year.
Then in early 2018 when the 2017 payroll returns are filed by your employer, Social Security will verify how much you actually earned in 2017, and may repay any excess benefits that were withheld or let you know if they did not withhold enough. But beware! TSCL has learned of cases where these recalculations have been wrong and very time consuming to get corrected.
You would be FAR better off waiting until after you turn 66 to start benefits at your full retirement age. After reaching full retirement age, you can receive benefits and earn as much as you want with no reduction to your benefits.
Publication: How Work Affects Your Benefits SSA Publication No. 05-10069
To find out how much your benefits would be reduced, use the Social Security Administration’s Retirement Test Calculator at SocialSecurity.gov.