Understanding Social Security Benefits While Working

According to a 2018 report from the Stanford Center on Longevity, many American workers are not adequately prepared to retire at age 65 while maintaining their current standard of living. The job losses experienced in 2019 further exacerbated this issue, leading many seniors to seek employment to supplement their Social Security benefits, which often fall short of meeting their needs. This article explores the implications of working while collecting Social Security and offers strategies to mitigate any negative impacts on benefits.

Key Considerations When Claiming Social Security

The age at which you claim your Social Security benefits is the primary factor influencing the amount you receive. The Social Security Administration categorizes benefits based on three key age milestones:

1. Early Retirement: Benefits can be claimed as early as age 62, but doing so results in approximately 70% of what you would receive if you waited until your full retirement age (FRA).
2. Full Retirement Age (FRA): This age varies based on your birth year: 1943-1954: 66 years 1955: 66 years and 2 months 1956: 66 years and 4 months 1957: 66 years and 6 months 1958: 66 years and 8 months 1959: 66 years and 10 months 1960 or later: 67 years
3. Delayed Retirement: You can delay claiming benefits until age 70, resulting in a monthly increase for each month you postpone. The increases vary by birth year, with an annual rate increase ranging from 5.5% to 8%.

It's essential to note that if you retire before age 70, some delayed retirement credits may not be applied until January following the start of benefits. For example, if you reach your FRA (67) in June and decide to wait until your 69th birthday to begin benefits, your initial benefit will reflect credits earned up to that point, with further adjustments made the following January.

Earnings Limits While Collecting Benefits

If you opt to collect Social Security before reaching your FRA, your earnings can affect your benefit amount, subject to the following thresholds for 2024:

• Under FRA for the Entire Year: You can earn up to $22,320 annually without losing any benefits. Beyond this limit, you will lose $1 for every $2 earned over the threshold.
• Reaching FRA During the Year: For individuals who reach FRA in 2024, the limit increases to $59,520, with a reduction of $1 for every $3 earned above this limit. Unlike the previous example, there is no proration for those reaching FRA during the year.
• Post-FRA Earnings: Once you reach FRA, there are no income restrictions. You can earn as much as you like while still receiving your Social Security benefits.

Excluded Sources of Income

Certain types of income are excluded from the earnings limit:

• Pension payments
• Most annuity payments
• IRA and retirement account distributions
• Dividends
• Interest income
• Capital gains

It's important to note that employment income—gross wages for employees or net earnings from self-employment—counts toward the earnings limit. For employees, income is attributed to the period it was earned, while for self-employed individuals, it's attributed to the period it was paid.

Important Advice

If you receive a notice from the Social Security Administration indicating that you owe money, do not assume immediate payment is necessary. Contact the agency promptly to clarify the situation. Often, misunderstandings can be resolved with a simple explanation, preventing any interruption in your benefits.

Conclusion

Navigating Social Security benefits while working requires careful consideration of age-related rules and earnings limits. As a financial advisor, it's vital to help clients understand these factors to optimize their retirement strategy effectively. By providing clear guidance, you can be empowered to make informed decisions about your financial future.

If you have questions about social security and your unique situation, visit us at www.familylegacync.com