social security

Silver Lining for the Social Security Earnings Test

Benefits lost in the short term are not gone forever.

Working longer could strengthen your retirement security. But if you go back to work after filing for Social Security, it could also reduce your benefits.

Social Security beneficiaries who continue to work before they reach full retirement age are subject to what's known as the earnings test. In 2015, if you make more than $15,720, you'll lose $1 in benefits for every $2 you earn over that limit. In the year you reach full retirement age, a more lenient test applies: You'll give up $1 for every $3 in earnings over $41,880 before your birthday. Starting in the month you reach your full retirement age, you can earn as much as you want without worrying about the earnings test. Only wages from a job or self-employment income will trigger the earnings test; investment income, pension benefits, and money withdrawn from an IRA or 401(k) aren't counted.

Fortunately, the benefits aren't lost forever. Once you reach full retirement age, your benefits will be adjusted to recover the amount that was withheld. Suppose you retire at age 62 and file for benefits. You then go back to work and end up forfeiting 12 months' worth of benefits by the time you reach full retirement age at 66. When Social Security recalculates your benefits, you'll be treated as if you claimed benefits three years early instead of four. So instead of having your benefits reduced by 25% -- which is what happens when you claim at 62 -- your benefits going forward will be reduced by 20%.

To estimate how earnings will affect your benefits before full retirement age, go to www.ssa.gov/oact/cola/RTeffect.html.

Most Popular

Tax Wrinkles for Work-at-Home Employees During COVID-19
taxes

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020

Recommended

14 Social Security Tasks You Can Do Online
retirement

14 Social Security Tasks You Can Do Online

Why visit a government office to get your Social Security business done? You can do much of that online.
June 26, 2020
Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check
Coronavirus and Your Money

Social Security Recipients, Veterans Must Act Now to Get Extra $500 Stimulus Check

The deadline for seniors and veterans to request an additional $500 stimulus check for a dependent child is almost here. Here's how you can claim your…
November 18, 2020
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
November 16, 2020
Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits
Basics

Social Security Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits

Claiming Social Security benefits at the right time means more money in your pocket. Here's a guide to everything from knowing your full retirement ag…
November 12, 2020