When the economy takes a downward trend and the retirement you planned did not quite work out in the manner you thought, what can you do? Most of us look at this scenario as an opportunity to engage in the workforce. Much confusion exists about working while claiming your Social Security Benefits.
“Can I work and receive my SSA benefits?” This is the typical question we receive when planning for retirement with our clients. I look the client straight in the eye and answer “depends”. Well, that wasn’t very helpful. However, the SSA regulations applied to this scenario are complex and may be confusing to many of us. To properly apply the rules, think in terms of life sections: 1) before reaching your full retirement age (FRA) as defined by law; 2) the year you reach FRA; and 3) the period after you reach FRA.
Let’s address the first section of life which is before you reach FRA. The earliest a person can receive SSA benefits, without being a survivor or disabled, is age 62. To determine your FRA, you must consider the year of your birth. For example, if you were born in the period of 1943-1954, your FRA is 66. The amount of SSA benefits you are entitled to at age 62 is reduced permanently to 75% of your projected full retirement benefits. For example, if you would have been entitled to $2,000 a month of SSA benefits at FRA, by claiming your benefits at age 62, your lifetime initial benefit will be reduced to $1,500 per month. The loss of $500 per month of lifetime benefits, depending upon your longevity, may become a significant amount. By working and delaying your claiming of benefits closer to your FRA, you will have opportunity to receive a larger percentage of your benefits. For example, if you claimed your benefits at age 64, you would be entitled to 86.7% of your full retirement benefit. The closer your age to your FRA, the greater percentage you may claim of your full retirement benefit.
The next section of life is the year of reaching your FRA. Let’s assume you were born July 1, 1955. Your FRA would be 66 years and 2 months. Therefore, you could work in your full-time position earning up to $50,520 in the period of January 1 to June 30, 2021. You would be allowed to claim your SSA benefits and receive the full retirement amount even though you worked more than that allowed for those beneficiaries who wish to retire before FRA. This is where the confusion lies. Think about the individual who decided to retire early at the age of 63. This person may earn only $18,960 in 2021 without impacting their SSA benefits. However, for every $2.00 earned over the $18,960 limit, their SSA benefit will be reduced by $1.00.
Lastly, let’s explore the impact on the SSA benefits and the amount of earnings an individual may earn initiating with the month after reaching FRA. A person who has delayed claiming SSA benefits until reaching FRA, may continue to work full-time and not subject their SSA benefits to any reduction. There are some tax implications that will be imposed on your SSA benefits when you file your individual income tax return but we will address this issue in a future column.
Thinking about the three phases of before, reaching and after retirement age will help you make a better decision on the timing of your SSA benefits. We typically perform an analysis that helps you understand the economics and the qualitative issues of claiming your benefits at the proper time. This complex set of laws can be difficult to grasp. Seek out a complimentary consultation to determine the date of claiming your SSA benefits and maximizing your retirement income. See you on the golf course!