Social Security Full Retirement Age and Excess Earnings

If you waited to claim Social Security benefits and your past Social Security full retirement age (FRA) needed to claim your benefits, you probably know that no benefits are actually lost because of your earnings. If you’re less than FRA, you’re subject to the following SSA rules:

  • If you reached FRA and your earnings weren’t higher than USD 41,880 (2016), you won’t lose benefits for the year.
  • If you earned more than USD 41,880 (2016) prior to the month in which you reached FRA, one dollar of your benefits is typically lost for every three dollars of income earned over this amount.
  • If you earned USD 15,720 or less (2016) and you’re less than FRA for the full year in which you claim Social Security benefits, you won’t lose benefits for the year.
  • If your income was higher than USD 15,720 (2016) and you’re less than FRA for the full year in which you requested Social Security benefits, you lose one benefits dollar for every two dollars you earned above USD 15,720.

Consider the impact of your Social Security benefits and earnings before you reach Social Security full retirement age.

Benefits and Earnings before Social Security FRA

Regardless of how much you earned in the reference year, no Social Security retirement benefits in the first year of retirement are lost for any month if you’re not earning more than USD 1,310/month as an employee (and you’re retiring prior to the year in which you reach FRA) or you render “substantial services” as a self-employed individual.

The first year of retirement is the initial year in which you’re entitled to Social Security benefits and a month in which you don’t earn over the exempt amount (cited above) and you don’t provide substantial services as a self-employed person.

Regardless of how much you earn in the first year of retirement, the monthly earnings test may apply to you. In this case, you receive full Social Security benefits in a month when your earnings don’t exceed the exempt per month amount and/or you don’t perform substantial self-employment services in that month.

Social Security Full Retirement Age and Earnings Test

Let’s take a look at some examples of FRA and earnings:

  • You’re a self-employed professional and report earnings on a calendar basis. You reach FRA (your 66th birthday) on June 1, 2016. The “under FRA” test will apply to you for calendar 2015 in which the FRA test (USD 41,880) will apply for that calendar year. Importantly, none of your earnings from June – December 2015 are considered under the annual USD 41,880 limit.
  • You’re self-employed and report earnings on a fiscal year basis (ending June 30th). You reach FRA on September 1, 2016. The FRA test (USD 15,720) applies to fiscal year July 1, 2015 – June 30, 2016. The FRA test (USD 41,880) applies to the next fiscal year, so last year’s July and August earnings will be counted in the USD 41,880 limit.

Let’s take a look at the types of earnings that can trigger a loss of Social Security benefits.

Earnings and Loss of Social Security Benefits

SSA says that wages you earn as an employee or your net earnings from self-employment are first considered. However, a bonus, commission, or fee earned from any type of work for which you receive compensation (regardless of whether it’s ‘covered’ by Social Security) counts in the retirement earnings test.

For instance, if you receive income from family employment, your earnings count even if these earnings aren’t covered. Your Social Security earnings base includes absentee owner income, self-employment earnings, and passive income you earned in the taxable year (in the first year of retirement).

Social Security considers the following income types according to the retirement test rules:

  • If you earned income on/after the first month in which you reached FRA, such as self-employment income that is less than the threshold or less than the threshold because it is prorated (even if you earned the money after FRA)
  • If you earned income as a self-employed person in the tax year after you’re entitled to Social Security benefits, but didn’t perform Social Security-significant services after the first month you were entitled to benefits
  • If you received a financial award for damages, penalties paid per court judgement, attorney fees, interest on money someone owes you, or money from a wage-based claim you lodged with an employer, ask Social Security about your windfall. This is a complex matter and requires you to communicate with Social Security about the back pay or monies you received from such settlements.
  • If you’re released from an employment contract and receive payments to secure the release

Other income won’t count towards the earnings test, such as:

  • If you received payment from a certain trust fund or annuity that is tax-exempt, you aren’t required to count these funds towards the earnings test.
  • If your former employer paid sick pay or personal bank days you didn’t use in a period that’s greater than six months after your last work day, the income isn’t added to the earnings test.

Ask Social Security about Excess Income

There are many other circumstances in which income may be generated after you claim Social Security benefits. For example, you may own real estate and rent out the property. Many financial advisers say the real estate income isn’t counter as self-employment income because you didn’t actually perform labor or weren’t a real estate dealer.

It’s important to ask Social Security about money you earn from prizes or contests, if you received workers’ comp or unemployment compensation benefits or received jury duty pay. If you derived a profit or loss from the sale of assets, this passive income probably won’t trigger loss of your Social Security income benefits. However, if you’re in doubt about any income you earned and if it’s considered excess earnings, call Social Security at 1-800-772-1213 or visit your local SSA field office to discuss your concerns.