The U.S. government pays a Social Security Income benefit to people aged 65 and older and to disabled adults and children under 65 with limited financial resources. Your Social Security benefit is calculated based on the amount of income you have, and earnings from wages and self-employment will reduce the amount of your benefit. Income you receive from retirement savings and investments, however, is not considered earned income and does not affect your Social Security benefit.
In general, the higher your income, the lower your Social Security benefit. The U.S. government reduces your Social Security payment based on the amount of earned income you have. For most people, earned income consists of wages and earnings from self-employment, although certain royalty, honoraria and sheltered workshop payments are also considered earned income.
Retirement and Savings Income
Retirement and savings income, like income from pensions, IRA distributions, 401(k) distributions, dividends and interest are not considered earned income and do not affect the amount of your Social Security benefit. They do, however, affect your adjusted gross income, which might affect the amount of tax you have to pay on your Social Security benefit.
Working and Receiving Social Security
You can continue to work while you receive Social Security, and your benefit will only be reduced until you reach full retirement age. Until you reach full retirement age, the Social Security Administration will deduct $1 from your Social Security payment for every $2 you earn above an annual limit, which was $14,160 at the time of publication.
Estimating Retirement Income
The U.S. Social Security Administration provides several online calculators to help you estimate how your Social Security benefit will change based on a number of factors such as earned income and the age at which you begin to receive Social Security. These calculators can help you make decisions such as whether to retire early and take a reduced benefit or wait until full retirement age to receive the full benefit.
Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.