Full retirement age, as defined by the Social Security Administration, is the key to earning freedom. Your full retirement age depends on your birth year; as of 2010, it is age 66 to 67 for those born after 1942. You can work and earn as much as you want without penalty or loss of Social Security retirement benefits, once you reach your full retirement age.
You can begin collecting Social Security retirement benefits any year from age 62 to 70, but full retirement age is the basis for calculating these benefits. Early retirement requires subtraction of a percentage from full retirement age benefits; late retirement adds a percentage to full retirement age benefits. Full retirement age for those born between 1943 and 1954 is age 66. The age advances two months for every year after 1954, so a worker born in 1956 sees full retirement age at age 66 plus four months. In addition to providing the standard for Social Security calculations, full retirement age signals the end of penalties for other income.
A worker at full retirement age may collect full benefits without earning restrictions. Workers taking Social Security retirement benefits early can only earn $14,160 a year without incurring penalties, as of 2010. Social Security imposes a penalty of $1 for every $2 earned above this income limit. Thus, workers taking Social Security retirement benefits early can potentially lose these benefits for months or years in which they earn significant income, before they reach full retirement age.
Once you reach your full retirement age, you can collect your Social Security retirement benefits with no penalties for employment income. Note, however, that waiting beyond your full retirement age can further increase your benefit (up to 8 percent a year depending on your birth date), up until age 70.
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For workers who began collecting Social Security retirement benefits before full retirement age, the Social Security Administration no longer imposes any penalties once they reach full retirement age. Further, it recalculates the monthly payment for those who began collecting their Social Security retirement benefits early, adding in penalty months to increase the monthly benefit. This recalculation of benefits at full retirement age, coupled with no more penalties, can make a significant difference for retirees who continue to work.
If you wait to collect Social Security retirement benefits at your full retirement age, you can earn any amount of income and collect your full Social Security benefits. The Internal Revenue Service may tax your income and your Social Security benefits, however.
The IRS taxes Social Security benefits based on a combined income calculation that starts with adjusted gross income, adds nontaxable interest and 50 percent of Social Security benefits. As of 2010, taxation of Social Security benefits begins at $25,000 combined income for individuals, and $32,000 for those married and filing jointly.
Social Security penalties on earned income apply only to those who take their retirement benefits early. In addition, the advantages of waiting to take Social Security retirement benefits end at age 70.
As of 2010, the Social Security system does not count additional employment income and does not reward greater retirement benefits after that age. When you reach age 70, accept your retirement benefits and hope for a long life.
- Social Security Online: OASDI and SSI Program Rates & Limits, 2010
- Social Security Online: Publication 05-10069: How Work Affects Your Benefits
- Social Security Online: Age to Receive Full Social Security Retirement Benefits
- Social Security Online: Delayed Retirement Credits
- Internal Revenue Service: Publication 915 (2009), Social Security and Equivalent Railroad Retirement Benefits
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