Earnings Test Calculations

Earlier this week I wrote about the annual earnings test, also called the retirement test, emphasizing the special rule that can apply to earnings for one year. Since then I have been asked if there is an easy way to tell how earnings will lower retirement or survivor benefits during the year. 

I think the easiest way is to first look up your full retirement age (FRA). Then estimate your gross wage and net self-employment earnings for the calendar year, read the online annual earnings test information and do the easy math based on whether you are younger than FRA for the entire year or if you reach FRA during the year. Retirement FRA is age 66 for birth years 1943 – 1954. 

From the website at http://www.socialsecurity.gov/retire2/whileworking.htm:

 We use a formula to determine how much your benefit must be reduced:

 If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2013, that limit is $15,120.

 In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age. If you will reach full retirement age in 2013, the limit on your earnings for the months before full retirement age is $40,080.

Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Remember that there is a special, one-time monthly earnings test, usually used in the first year of retirement.

The Retirement Earnings Test Calculator is one of the retirement planner tools that could be useful to you. Using it, people who are currently working and are eligible for retirement or survivors benefits this year can learn how their earnings may affect benefit payment. To use it, first estimate your monthly benefit with other retirement planner calculators. The Earnings Test Calculator uses the full retirement ages (FRA) for Social Security retirement benefits. FRA is different for survivors benefits.

Contact Social Security for specific instructions if you return to work while receiving disability benefits.