Q: I retired in 2011 but expect income in 2012 from work done before I retired. Will this lower my 2012 Social Security benefits?
A: For people younger than full retirement age, the SSA annual earnings test, also called the retirement test, concerns how much can be earned from wages or self-employment in a calendar year without reducing benefits.
Termed a “special payment”, money received in 2012 for work done before your 2011 retirement does not normally affect your SSA retirement. Employee income received after retirement is a special payment if the last thing done to earn the payment was completed before stopping work. Examples could include accumulated vacation or sick pay, bonuses and sales commissions. If self-employed, net income received after the first year you retire is a special payment if you performed the services to earn the payment before becoming entitled to receive Social Security.
Two local occupations often receiving special payment earnings for SSA retirement purposes are insurance salespeople and farmers. Insurance commissions for policies sold before retirement but received after the year of retirement are usually special payments and will not affect SSA retirement. If a farmer fully harvested and stored a crop before or in the month of entitlement to SSA benefits, and then carried it over for sale in the next year, the income will not affect benefits for the year of sale.
As always, this is general information. If applicable to you, discuss special payments when filing for retirement. Read the SSA publication, Special Payments After Retirement, at www.socialsecurity.gov/pubs/10063.html or available from any SSA office. Annual earnings test information is at www.socialsecurity.gov/retire2/whileworking.htm