Q: I retired in 2013 but expect income in 2014 from work done before I retired. Will this lower my 2014 Social Security benefits?
A: For people younger than full retirement age, the Social Security 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 during that year.
Termed a special payment, money received for work done before retirement is not normally included for the earnings test. Income received after retirement is a special payment if the last thing done to earn it 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.
For example, say a person retired at the end of 2013 and started receiving Social Security retirement as of January 2014. In January, the person receives payment from the former employer for unused vacation time. Since this vacation pay was earned before retirement, it is considered a special payment and not counted towards the 2014 annual earnings limit.
Two local occupations often receiving special payments 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. 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. Keep documentation related to this.
As always, this is general information. To learn more, read the SSA publication, Special Payments After Retirement, at www.socialsecurity.gov/pubs/10063.html or contact Social Security. Annual earnings test information is at www.socialsecurity.gov/retire2/whileworking.htm.