What Income Lowers Social Security Benefits? – Community News
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What Income Lowers Social Security Benefits?

Senior man at work

Senior man at work

If someone who receives Social Security benefits earns money by working, the Social Security Administration may reduce that person’s amount. This only affects people who receive benefits before reaching full retirement age. And only income from work has this effect. Other types of income, such as dividends, interest and capital gains from investments, are not counted by Social Security for this purpose. If you have questions about working while receiving Social Security benefits, consult a financial advisor for expert guidance.

Earn while receiving Social Security benefits

Opting for a pension or survivor benefits doesn’t mean you can’t get income from other sources. And extra money from a part-time job or from investments can help stretch Social Security checks and make retirement more comfortable.

However, people who choose to receive benefits before reaching full retirement age — 67 for those born in 1960 or later — can only earn a certain amount each year before Social Security starts cutting their benefits. . The profit ceiling is adjusted for inflation. For 2021 it is $18,960.

Once annual income reaches the maximum amount, the total annual benefit is reduced by $1 for every $2 earned by a Social Security recipient under retirement age from working. Suppose a recipient receives $1,000 a month in benefits and starts a part-time job that pays $20,000 a year. If you subtract $18,060 from $20,000, you get $1,040. If you divide $1,040 by 2, you get $520. This is the amount by which Social Security reduces the annual benefit.

People can earn $50,520 before reaching full retirement age without affecting their benefits. And the discount amount is also only $1 for every $3 earned over the limit.

In addition, the income only counts against the ceiling until the month before the retirement age is reached. This means that an individual who fully retires in November after earning $50,000 during the first 10 months of the year will not receive a reduction in benefits.

After full retirement age, there is no limit on income. A recipient can earn any amount without affecting its benefits. This begins with the month a Social Security recipient reaches full retirement age. So the recipient in the above example would continue to receive full benefits after reaching full retirement age in November, regardless of how much he or she earns.

Income Sources

Senior woman working in a supermarket

Senior woman working in a supermarket

Not all income is created equal when it comes to Social Security income limits. In general, any income from work counts towards the income cap. Here are examples of the types of income that count towards the limit:

  • Wages and salary paid by an employer

  • Net income from self-employment

  • Bonuses

  • committees

  • Holiday pay

Income from sources other than labor does not count. Some of the sources of income that do not affect Social Security benefits include:

Keep in mind that income earned before you start receiving Social Security doesn’t count either. This may include stock options, back wages, bonuses, and payments for unused vacation or sick leave. Even if these payments come in after you receive benefits, they will not count towards the limit as long as they were earned before the benefits began.

More about earning income while enjoying benefits

If benefits are reduced because a minor Social Security recipient earns more than the maximum amount, the money isn’t really lost. It’s just delayed. After the recipient has reached full retirement age, Social Security recalculates the benefit. The new benefit will be higher to compensate for benefits withheld due to excessive earnings.

Sometimes making money while receiving Social Security can also increase your benefits. This can happen if, during a year of receiving Social Security benefits, you earn enough money to make the year one of your highest earning years. Social Security calculates benefits based on an employee’s highest earning years. So adding a new high level to your earnings record can increase your benefit.

There are different rules for people who receive Social Security benefits or supplemental income. These people must report all earnings to Social Security. In addition, people who earn money to work outside the US are treated differently.

Keep in mind that Social Security uses an estimate of income for the coming year when calculating benefits. Recipients are expected to provide an estimate of earnings to assist the agency in calculating benefits. If earnings are found to deviate from the estimate, recipients should notify Social Security as soon as possible.

Bottom Line

Older man working on a farm

Older man working on a farm

Social Security recipients who have reached full retirement age can earn as much as they want from any source without affecting their benefits. However, for those who start receiving benefits before reaching full retirement age, their benefits may be reduced if they earn above a certain amount. Some types of earnings do not count towards the limit. These include dividends, interest, and capital gains from investments, as well as pensions, annuities, and a few other sources.

Tips about retirement

  • Choosing the right time to start claiming Social Security benefits can have an inordinate effect on a retiree’s financial comfort level. Engaging an experienced and qualified financial advisor will increase your chances of making the right decision. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you to up to three financial advisors in your area, and you can interview your advisor matches at no charge to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • The annual payment you receive from Social Security is based on your income, year of birth, and the age at which you choose to receive benefits. Use this free calculator to get an estimate of the benefits you will get.

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