Whether or not you’re still working can have a big impact on your Social Security Benefits. If you’re not yet at your full retirement age (FRA) but you’re still working, your benefits might be reduced. In 2011, you can earn up to $14,160 before your benefits are reduced. Above that, though, for every $2 of earnings, you will get $1 less in benefits. For example, if you earned $20,000 in a year, the first $14,160 don’t impact your benefits, but the additional $5,840 will reduce your annual benefits by $2,920

In the year that you reach your FRA, a similar procedure is done, but it’s not quite as stringent. You can earn a bit more before having your benefits reduced, up to $37,680 to be exact, and it’s only a $1 reduction for every $3 in income after that.

So the bad news is that if you’re still working and collect benefits early, you won’t receive the full benefit amount that is shown on your Social Security Statement.

However, there is good news and this is pretty important as there’s a lot of confusion about this. Those reductions in benefits due to working are not permanent losses. Once you get to your FRA, your benefits will be recalculated to a higher level to make up for what was held back in prior years. I think there’s something of a misperception out there that the benefit reduction is some sort of penalty, but that’s not true. It’s really just shifting some of those early benefits to later years.

A final point on this topic is that once you hit your FRA, you can work and earn as much as you want and your benefits won’t be reduced.

But if you’re thinking that’s all there is to this story, think again! Did you know that if you have other income besides your benefits that your benefits may be taxable? See our next blog for details.

 

Note: This blog article is one of a series related to Social Security Benefits. Please also review the companion video (or just the slideshow) for a more expansive review.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.