Penalties for working while collecting Social Security retirement
This post will explain some important things about penalties for working while collecting Social Security retirement. This is important information that can potentially save your clients from a real headache.
Until you reach your full retirement age according to Social Security, working while receiving early retirement benefits may reduce your Social Security retirement benefits.
More and more people are working past the age of 62. As a result, a number of them may be collecting Social Security benefits and also work full time. As a result, they are collecting Social Security prior to their natural retirement age.
By working at a high enough salary you may increase your lifetime earnings average. This could slightly increase your retirement benefits for future years. If you are also claiming early social security benefits and continue to work, you should know that the money you earn over a certain amount each year may reduce your Social Security retirement benefits (until you reach full retirement age). Such a reduction in benefits applies only to the years you are working. It has no permanent effect on the amount of benefits you’ll receive in future years.
There are Limits on how much you can make if taking Social Security Early
Until you reach full retirement age, (age 66 for most people) Social Security will hold money out of your monthly benefit if you make over the earned income limit.. For the year 2017, the earned income limit is $16,920 annually. The amount is usually increase on an annual basis. If you are collecting Social Security and go over he limit, you will lose $1 of your social security payment for every $2 over the limit. If you are natural retirement age, there is no limit on how much you can earn and still keep your full benefit.
Social security will not reduce your income on a monthly basis. They will usually take a number of months to determine you made over the limit. They will then ask for a lump sum payment to give the money back. If that option is not chosen, they will withhold some or all of future Social Security payments until the money is paid back. Social security has a site that explains how they take the money back. Click here to access the Social Security pamphlet on how work influences social security payments You may collect unemployment and collect social security prior to natural retirement age without a penalty however.
Those hitting natural retirement age in the year they collect Social Security
For those taking benefits, there is a special rule in the year you are hitting your natural retirement age. Those hitting retirement age in 2017, may earn up to $3,740 per month without losing any of the benefit until the month they hit age 66. Those who go over the $3,740 a month, will be subject to a penalty of $1 for every $3 they go over for the year they are turning 66.
There is a self employed rule that may allow self employed people to receive their full benefit in the year they turn 66 regardless of income. They would need to work less than 45 hours a month for this exception.
You can slowly gain back the money you lost going over the limit.
Once you reach natural retirement age, Social Security will slowly, very slowly pay back the money you lost. They will pay it in small amounts with most of the money being returned within 15 years.