Gabe Fransen | March 19, 2024

As folks near retirement age and start thinking about their social security benefit, there are many things to consider when determining when to start receiving that extra paycheck. One area that is often not easily understood is the impact of one’s earned income while claiming Social Security benefits. In this article, we’ll discuss some things you need to know. Let’s start with the basics:

• Your full retirement age (FRA) is when you can get your full Social Security benefits without any reductions
• For those born between 1943 and 1954, the FRA is 66
• If you were born in 1960 or later, it’s 67

If you decide to claim your benefits before your FRA and keep working, you might have to deal with the earnings test. The earnings test applies to people who want to claim Social Security benefits before their FRA and continue to work. In 2024, the earnings limit is $1,860 per month or $22,320 per year for those who haven’t reached their FRA. If your earned income goes over this limit, your Social Security benefits will be reduced by $1 for every $2 you earn above the limit. For example, if you earn $2,000 per month while drawing Social Security benefits before your FRA, your benefits will be reduced by $70 per month ([$2,000 – $1,860] / 2).

For those who reach their FRA in 2024, the earnings limit is $4,960 per month or $59,520 per year. In this case, your benefits will be reduced by $1 for every $3 you earn above the limit. But once you hit the month that you turn your FRA, the earnings test no longer applies, and your benefits won’t be reduced due to earned income. For example, if you turn FRA in June of 2024 and you earn $6,000 per month, your earned income prior to the month of turning FRA would be $30,000, since that is below the $59,520 limit, you would not get your benefits reduced. On the flip side, if you turn your FRA in December of 2023 and you earn $6,000 per month, your earned income prior to the month of turning FRA would be $66,000, which is over, the monthly benefit would be reduced by $346. In this case, once December hits and you are FRA, there would no longer be a reduction of benefit no matter how much income was earned going forward.

You also need to consider the potential tax implications when deciding to claim Social Security benefits while still earning income. Depending on your income level, you might have to pay federal income taxes on your Social Security benefits. If your combined income (adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits) exceeds certain thresholds, up to 85% of your benefits may be subject to taxation.

Understanding the rules of drawing Social Security benefits while still earning income is crucial for making informed decisions about your retirement. By considering your full retirement age, the earnings test, and the potential tax implications, you can maximize your Social Security benefits and ensure a more financially secure retirement. If you have questions about all that goes into determining when to turn on Social Security benefits and you want to discuss how it might impact your retirement plans, please contact our office to schedule time to discuss.

The Social Security Administration’s official website, Receiving Benefits While Working: https://www.ssa.gov/benefits/retirement/planner/whileworking.html#h1