Tag Archives: working when receiving social security benefits

Deciding when to start SSA retirement

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Last week I wrote that there is no one best time for you to start Social Security retirement related benefits. It is a very individual decision, based on your own personal family and financial circumstances. You can retire without starting Social Security retirement. You can start Social Security without fully retiring.

In no particular order, here are a few of many questions for you to consider before deciding when to start your Social Security, or before retiring at all.  Use the SSA retirement planner tools at http://www.socialsecurity.gov/retire2/.  

1. What are your retirement plans? Stay home or travel extensively? Can you afford to retire earlier or should you wait and continue building your savings? Social Security retirement benefits are permanently reduced if started when you are younger than full retirement age (FRA). If delayed they continue growing each month until age 70. Do you want a smaller, reduced, amount or do you want to wait for a larger amount?

2. What is your other income? Social Security was never intended to be your primary retirement income. You will need other income. If you have average earnings, under current law your Social Security retirement benefits will replace about 40 percent of your pre-retirement earnings. The percentage is lower for people in the upper income brackets and higher for people with low incomes. Social Security benefits are the foundation for a secure retirement but you will need other income such as savings, pensions or investments. Financial advisors have told me that people need about 70-80 percent of pre-retirement earnings to comfortably maintain a pre-retirement standard of living. Depending on overall income, part of your Social Security might be subject to income tax. 

 3. Are Social Security benefits through your record payable to family members?  If so, perhaps starting sooner, with a permanent age reduced amount, is a good idea for you so that family members can receive also. Starting retirement at a younger age will reduce your benefits, but amounts paid to others on your record will not reduce your own amount.

4. How long are you going to live? Retirement could last many years. On average, a man reaching age 65 today can expect to live until age 84 and a woman until age 86. About one out of every four 65-year-olds today will live past age 90 and one out of ten will live past age 95. Are members of your family generally long-lived and healthy or not?  How is your own health? Your answers might lead you to start retirement either sooner or later.

5. Do you expect die before your spouse? Will she or he be eligible for a survivors (widow/widower) benefit on your work record? Delaying your retirement benefits could provide a higher survivors benefit to your surviving spouse, if one is payable. Survivors benefits might be payable even if spousal benefits are not. 

6. Are you eligible for both Social Security retirement and survivors benefits? How much is each? The timing of which benefit to start first can matter. Survivor benefits based on age can begin as early as age 60; your own retirement not before age 62. Starting the survivor benefit first could let your retirement amount grow, up to age 70. Starting retirement first could let the survivors amount grow, up to your survivor full retirement age. Learn your options. Full retirement age (FRA) is different for retirement and survivor benefits.

 7. Will you continue working? Consider the effect of continued employment on your Social Security benefits. You might be able to work and receive all your SSA retirement or expected earnings might prevent payment of at least a portion of your benefits. Once reaching full retirement age (FRA), Social Security benefits are not limited by earnings. Ongoing employment might increase future benefits. 

8. Remember Medicare. Are you approaching age 65? You can enroll in Medicare without receiving Social Security monthly benefits. If not yet receiving Social Security, you must take action to enroll in Medicare.  Enroll in Medicare Hospital Insurance (Part A) about three months before reaching age 65. You can apply online. You may not need Medicare Medical Insurance (Part B) at age 65 if your medical insurance is under a group plan based on your, or your spouse’s, current employment.  Research your needs in advance. General Medicare general information is in “Medicare” SSA publication 05-10043. Coverage details are at www.medicare.gov. .  

9. What does your spouse or partner want?  Perhaps the most important question here. Discuss it together.

When to start receiving Social Security retirement benefits (see SSA publication 05-10147) is an individual decision. You decide what is right for you. Use the SSA retirement planner tools at http://www.socialsecurity.gov/retire2/.   

When plans change – work after retirement and your Social Security

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What if you retire, start collecting Social Security retirement, and then your plans change with a return to work? Using the following question, this is today’s topic.

Q: I started Social Security retirement at age 62, received benefits for over a year, then returned to work with high enough earnings to stop my SSA benefits due to the annual earnings test. I am ready to stop working again and restart my retirement. Will my Social Security amount be higher now because I am older? I am age 65 with a full retirement age of 66.

A: You have two issues here. One will eventually result in a higher retirement amount and the other might do so. Your monthly amount was reduced when you began Social Security retirement at age 62 because you were younger than full retirement age (FRA). While retirement amounts increase with cost-of-living adjustments and other changes, just getting older is not cause for increase and does not increase benefits already started. Considering just age, your retirement benefits will initially resume as they were when you first started them.

However, when a person electing reduced benefits reaches full retirement age (FRA), Social Security automatically reviews their record to see if there are months for which they had a reduction but did not actually receive a payment. If so, you get credit for those months, thus increasing your amount. This fits your situation since you had months without benefit payment due to your return to work. This automatic review takes place when you reach FRA. Effective then, benefits will increase by the number of months that your return to work prevented payment.

 A related issue is that new earnings can potentially increase benefits. Social Security retirement is computed using your best 35 earnings years. If new earnings are higher than a previous year used, they could increase your retirement amount. Also automatic, this earnings review takes place each year and can increase benefits whether you are younger or older than full retirement age.

See Social Security publication “How Work Affects Your Benefits” for more information.

When retirement plans change, sometimes a person can withdraw his or her Social Security application and then re-apply at a future date. Doing this requires repayment of all benefits received by you and any family members through the application. However, if you change your mind 12 months or more after becoming entitled to retirement benefits, you cannot withdraw your application. Withdrawing the retirement application was not an option for this person because he or she had already received Social Security for over a year before returning to work.

Did You Know?  Recorded in April 2013, a 28-minute webinar titled How Social Security Can Help You Plan for Retirement is now on the SSA website. Topics include your retirement amount, full retirement age, family benefits, retirement considerations and more. To watch, go to www.socialsecurity.gov and then to the new Social Media Hub at lower right.

Born on first of month – FRA and the retirement test

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Q: I reach my full retirement age (FRA) of 66 on May 1, 2013. Is there any significance to waiting until age 66 ½ to start my Social Security retirement? That is when I plan to retire. 

A: You can start your Social Security retirement with whatever month you think best, if you meet all requirements at the time. 

If starting SSA retirement when older than full retirement age, your monthly amount would be more than the full retirement age (FRA) amount. If starting before FRA, the amount would be less than the FRA amount.The amount of increase or reduction depends on the specific number of months involved, not your age in years.

Being born on the first day of the month is important for you. Legal precedent states that a person attains their age on the day before their birthday. When born on the first of the month, Social Security figures your benefit amount and your full retirement age as if your birthday was in the previous month. With a birthday of May 1, you are considered to reach FRA in April. Consider this when deciding when to start your Social Security retirement.  

Estimate your full retirement age (FRA) amount with the Retirement Estimator in the SSA Retirement Planner section (www.socialsecurity.gov/retire2/). Then, use your estimated FRA amount with the “compute the effect of early or delayed retirement” calculator to estimate amounts for specific months before or after FRA. This calculator is at http://www.socialsecurity.gov/OACT/quickcalc/early_late.html#calculator. 

How much will you earn in 2013? The earnings limit (annual earnings test) for people turning age 66, their full retirement age, in 2013 is $40,080. A special monthly, one time, earnings test exists and usually used in the first year of retirement if high earnings are expected that year. Depending on your anticipated 2013 earnings, you might decide to start benefits with January, with a smaller monthly benefit, even though you plan to continue working until May. Use the tools mentioned above to estimate benefits starting with any month. The earnings test stops with the month you reach full retirement age. With no limit on your earnings, starting your Social Security at FRA is another option even if you continue to work.

 

Receive Social Security? Working? Remember your annual earnings report.

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Q: Last year I started Social Security retirement. As it turned out, I did not continue to work part-time although that had been my original plan. Do I need to report that my earnings were less than expected for last year?

A: If younger than full retirement age (FRA) for part of last year, report your 2012 employment earnings to Social Security if your estimated or actual earnings exceeded your 2012 annual earnings test amounts. This applies whether you started Social Security retirement or survivors benefits last year or in a previous year. Earnings test amounts for 2012 are in Social Security publication 05-10077, “What you need to know when you get retirement or survivors benefits” noted below. 

Earnings for the annual earnings test include only your own gross wages from employment and net-income from self-employment.  

Your estimated earnings amount for a year is used to pay benefits during that year. If your 2012 estimate was high, perhaps you are due funds that were withheld. If your estimate was low, perhaps you need to return funds.

For basic reporting requirements, read Social Security publication 05-10077, “What you need to know when you get retirement or survivors benefits” online or available from any SSA office.

To report your 2012 earnings, call the Social Security national toll-free number, 1-800-772-1213 (TTY 1-800-325-0778) or contact your local office.

Working in 2013? Annual earnings test amounts are at http://www.socialsecurity.gov/retire2/whileworking.htm. Provide an estimated earnings amount to Social Security if you receive a SSA retirement or survivors benefit, are younger than full retirement age for at least part of 2013, and expect to earn over the 2013 earnings test level for your age.This estimate will help keep your benefit amount accurate. Your estimate can be changed during the year as needed.

The earnings test does not apply if you receive benefits because you have a disability. In this case, report starting or ending work to Social Security at the time.

 

Special Payments After Retirement

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When you are younger than full retirement age (FRA), the Social Security annual earnings test involves how much you can earn from wages or self-employment in a calendar year without reducing benefits.  

What if you are paid in 2013 for work completed before retiring in 2012? Does this income count towards earnings test limits? Will your 2013 Social Security retirement benefits be reduced due to this 2012 work? 

Termed a “special payment”, money received in 2013 for work done before your 2012 retirement will 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. Commissions for insurance policies sold before retirement but received after the year of retirement are usually considered special payments. If a farmer fully harvested and stored a crop before or in the month of entitlement to Social Security 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 Social Security publication 05-10063, “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.

 

What counts for the annual earnings test?

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Both previous posts this week were about the annual earnings test, also known as the retirement test. The annual earnings test concerns how your own employment earnings in a calendar year affect your Social Security in that year.  

The earnings test does not apply if you receive Social Security because you are disabled. Contact Social Security for specific instructions if you return to work while receiving disability benefits.

The earnings test includes only your personal gross wages or net income from self-employment for the entire calendar year. That is all. Your other income or income of a spouse is not applicable for your earnings test purposes. Pension payments, annuities, interest, dividends or a good day at bingo are not included earnings for the annual earnings test even though they might be for income tax.

Each person receiving Social Security benefits has an earnings test level if they are younger than full retirement age (FRA).  For example, say both you and your spouse receive Social Security retirement and you are both younger than full retirement age all year. Since you both are younger than FRA all year, in 2013 each of you can individually earn up to $15,120 before exceeding earnings test limits. What if just one of you is employed? The same amount applies because the retirement test amount is for the individual person, not the couple. 

How does Social Security know your estimated earnings for the year? You tell us. If you plan to earn over retirement test levels, contact Social Security and provide an estimated earnings amount. If necessary to prevent a future overpayment to you, Social Security will withhold benefits based on the earnings estimate provided. Revise your estimate as needed if plans change during the year. When the year or work ends, report your final earnings so Social Security can review your record and be sure you were paid all benefits due.

Note: Benefits paid to other family members through your work record can be withheld if your earnings exceed earnings test amounts. If your retirement benefits are withheld because of your estimated earnings, benefits of people receiving through your record, such as a spouse or child, can also be withheld.

 

Earnings test calculations

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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.

 

Will my earnings before retiring this year lower SSA retirement?

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Q: If I retire in May or June of this year, do my earnings for this year count against me for my 2013 Social Security benefits?  In other words, if I make more than $15,120, before I retire this year, am I penalized on my Social Security checks for the remaining months of 2013?  

A: This question is about the annual earnings test, how earnings in a year affect Social Security benefits payable for that year. 

The annual earnings test is based on the calendar year. Annual earnings levels depend on whether you are under full retirement age (FRA) for the entire year, reach FRA during the year, and once you reach FRA. Actual amounts involved usually change each year.  

People start Social Security retirement all during the calendar year. Some people who retire in mid-year have already earned more than their yearly earnings limit so there is a special rule that applies to earnings for one year, usually the first year of retirement. The special rule lets you receive a full Social Security check for any whole month that you are retired, regardless of your calendar year earnings.  

Returning to the question, if this person is at least age 62, has enough work to be insured, and retires in May or June, Social Security can still start for the following months despite high earnings before retirement. Note that the amount mentioned in the question is for a person younger than full retirement age the entire year.

One of the reasons that I often mention the retirement planner section of the Social Security website is that a lot of information is there to help in your planning. In addition to the different calculators and other tools, information about working while receiving retirement benefits is there. 

In particular, see the section “Work after you retire” for annual earnings test information. There, the part about the “special rule that applies to earnings for one year” has information about the monthly earnings test for 2013. 

The publication “How Work Affects Your Benefits” (publication 05-10069) will also be helpful.

Are retirement amounts recalculated at FRA?

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Q: Is there a review of your Social Security retirement amount once you reach full retirement age, even if you started benefits earlier?  For example, could earnings since you started Social Security increase the original amount? 

A: Starting reduced Social Security retirement benefits when younger than full retirement age (FRA) results in permanently reduced benefits. Your retirement amount will not increase just because you have gotten older, although you do receive cost-of-living increases.

However, two routine reviews can increase your original benefit amount. Both involve working while receiving Social Security retirement.  

First, when you reach full retirement age (FRA), there is a review of your existing benefits to be sure that all reductions for age applied. Benefits would increase for months that a person did not actually receive benefits because of work.  

For example, consider a person receiving Social Security retirement and working at the same time. If his or her earnings were low enough to permit ongoing payment of all monthly benefits, the review would not change the Social Security benefit because payment was received for all months. However, say earnings were high enough to prevent benefit payment for five months. Here the review at full retirement age would result in a benefit increase by the amount of those five months.  

A second review, also automatic, does not have to wait until full retirement age. Benefits are routinely reviewed to determine if earnings from new work activity can replace years previously used in computing a benefit amount. 

New and higher earnings on your record can replace one of the 35 years used to compute your original amount. When this happens, existing amounts are automatically recalculated and might increase benefits. Increases from this review can take place before full retirement age. This automatic review usually occurs in the fall, once employer W-2’s are all processed. For example, increases in benefits due to 2011 earnings were paid in November 2012, retroactive to January 2012. 

Other examples of these two reviews are in the booklet, How Work Affects Your Benefits, SSA publication 05-10069. Annual earnings test information for 2013 is also in this publication.

 

Receiving Social Security? Work in 2011? Read this.

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As recently as last week, several times I have mentioned that ongoing employment after retirement has the potential to increase your Social Security benefit. 

To determine if payment amounts should increase, work records of everyone receiving Social Security benefits are automatically reviewed each year that new earnings are posted to their record. 

To increase monthly Social Security benefits, your new earnings have to be higher than earnings in a year already used to compute your retirement amount. If not higher than earnings already used, new wages will not change your existing amount. Your best 35 years of gross wages and net self-employment earnings, weighted for inflation, are used to compute your Social Security retirement amount.

An initial computer run to add in new wages and self-employment earnings for 2011 has been completed. Most people who are due a benefit rate increase based upon additional earnings for 2011 or earlier will receive the increase in their Social Security benefit for November 2012. Remember that the Social Security payment for November is received in December. Related retroactive increases covering earlier months of 2012 will also be included in the benefit for November.

More than retirement benefits could be involved. For example, if a person died during 2011 or earlier in 2012, it is possible that ongoing Social Security survivors benefits on that record could increase due to 2011 earnings if they were not previously obtained.

This automatic initial computer run has identified and processed many, but not all, of the cases where an increase because of 2011 earnings is due. Individual case records requiring additional review are always present, to be processed on an ongoing basis.

Individuals receiving a benefit increase based on the addition of 2011earnings will receive a letter explaining the increase.  

Any increase from the addition of 2011 earnings is separate from the upcoming Social Security cost-of-living adjustment (COLA) increase. The 1.7 percent COLA increase will begin with benefits that more that 56 million Social Security beneficiaries receive in January 2013. Separate letters are being mailed to explain COLA related changes.  

Reminder: To receive letters about your benefits, one of your reporting responsibilities is to notify Social Security when your mailing address changes, even though your payments are electronically received by direct deposit. Social Security benefit notices are sent by surface mail through the U.S. Postal Office, not by email.