If you think that the best way to make ends meet after retirement is to collect Social Security benefits and cut expenses, you can do that. If you believe closing the money gap between a living wage and your retirement benefits is a matter of getting a job, this is an option too. If you're confident that it's best to supplement your Social Security with earned income, you can do that as well.
However, before you decide what to do, realize that several factors have a significant impact on your Social Security benefits. Understanding the ramifications of these factors will help you identify the best option for you.
Full Retirement Age
The age at which you retire from your job and receive full retirement benefits is referred to as the normal retirement age (NRA). From the perspective of the Social Security Administration (SSA), for those born from 1943 to 1954, the normal or full retirement age is 66. For others born from 1955 to 1960, the retirement age ranges from 66 and two months to 66 and 10 months. For anyone born 1960 or later, full retirement begins at age 67.
Social Security Benefits Eligibility
If your full retirement age is 67, you can retire from your job at 67 and begin to receive your full monthly Social Security benefits. Alternatively, you can take early retirement at age 62 or any time before your 67th birthday. In this case, your benefits check is only 70 percent of what it would be if your waited until age 67.
You can also wait until age 70 to receive your benefits at which time you'll receive the maximum monthly benefits, which is 132 percent of your full retirement benefits. Consequently, there's no financial advantage to delaying your application for Social Security past the age of 70 as it maxes out at this age.
Early Retirement Earnings Test
If you're working and collecting Social Security, whether the money you earn decreases the amount of your Social Security check depends on your current age, if you began receiving benefits at 62, and the amount of your earnings. For instance, if your full retirement age is 67, but you start receiving your benefits at 62 – five years prior to your full retirement age – you would receive reduced benefits.
If you receive Social Security at 62, or any age before your full retirement age, the earnings you receive in 2021 that exceed the SSA $18,960 earnings limit will decrease the dollar amount of the benefits you receive. In fact, for each $2 you earn in excess of the earnings limit, the Social Security Administration will deduct $1 from your benefits.
In the year that you reach full retirement age, the earnings limit rises to $50,520,and $1 is deducted for each $3 you earn over that limit. What's more, that deduction affects only the months that occur before your birthday.
Once you are of full retirement age, you will receive your full Social Security monthly benefits regardless of the amount of money you earn.
SSA and Earned Income
When the Social Security Administration applies the earnings test, the agency considers "earned income" only. SSA describes earned income as salaries, commissions, bonuses, severance pay and other payments you may receive as an employee. Alternatively, earned income can take the form of company profits generated by a business you own and operate. Excluded are investment income, capital gains, pension income and annuity payments.
A number of Social Security recipients continue to work after they retire. People often collect Social Security benefits, work and pay taxes to support those benefits. Others rely on earned or unearned income from other sources to make ends meet.
If you earned 40 Social Security credits when working and have reached full retirement age, regardless of the amount of money you earn after you retire, it will have no effect on your Social Security check. But if your applied for benefits at age 62, or before your full retirement age, earned income might reduce the amount you receive.
Read More: Earned Income While Drawing Social Security
- Social Security Administration: Understanding the Benefits
- Social Security Administration: Retirement Benefits
- Internal Revenue Service: Employee Benefit Plans
- Social Security Administration: Delayed Retirement
- Social Security Administration: Benefits Planner: Retirement
- Social Security Administration: Fact Sheet: 2021 Social Security Changes
- Social Security Administration: Code of Federal Regulations: Earned Income
- Employee Benefit Research Institute. "Changes in Later-Than-Expected Retirement After the Great Recession." Accessed Oct. 15, 2020.
- Social Security Administration. "Getting Benefits While Working." Accessed Oct. 15, 2020.
- Social Security Administration. "Quarter of Coverage." Accessed Oct. 15, 2020.
- Social Security Administration. "Social Security Credits." Accessed Oct. 15, 2020
- Social Security Administration. "Full Retirement Age." Accessed Oct. 15, 2020.
- Social Security Administration. "Early or Late Retirement?" Accessed Oct. 15, 2020.
- Social Security Administration. "Delayed Retirement Credits." Accessed Oct. 15, 2020.
- Social Security Administration. "Exempt Amounts Under the Earnings Test." Accessed Oct. 15, 2020.
- Social Security Administration. "Fact Sheet Social Security." Accessed Oct. 15, 2020.
- Social Security Administration. "Benefits by Year of Birth." Accessed Oct. 15, 2020.
- Social Security Administration. "Income Taxes and Your Social Security Benefit." Accessed Oct. 15, 2020.
- Social Security. "Income Taxes on Social Security Benefits." Accessed Oct. 15, 2020.
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.