Does a Person's Retirement Income Affect Their Social Security Benefits?

by Jay P. Whickson ; Updated July 27, 2017
If you take Social Security early, it might pay to fish and not work.

One of the benefits of getting older is Social Security and senior discounts. Of course, it doesn't offset the wrinkles and gray hair but it at least offsets a few of the negatives. There's a lot of confusion about earned income and Social Security benefits that can cause early retirees, those that retired at their appropriate age and those facing retirement many sleepless nights.

Benefits and Earnings after Retirement

If you retired at the age Social Security designates for full retirement and continue to work, it doesn't matter how much you earn, you'll still receive your monthly pension unaffected. This means that if your income escalates to millions of dollars a year, once you retire the benefit locks into that specified amount, even though you might pay more in Social Security taxes than you receive as a monthly benefit.

Early Retirement

Depending on how early you retire, your benefits adjust accordingly. If you retire at age 62, the youngest age allowed, you'll receive only 75 percent of the benefits you'd be eligible for at your normal retirement age if you were born between 1943 and 1954. For those born later, the reduction increases by 0.83 percent for every two months your full retirement age increases.

Loss of Benefits

Earning too much money once you sign up for early retirement is a problem. If you make more than $14,160 for the year, the Social Security Administration deducts $1 of benefit for every $2 you're over the limit. For those receiving Social Security but turning full retirement age in that year, the deduction changes to $1 for every $3. If you earn more than $14,160 the year after full retirement age, it doesn't affect your monthly payment.

Withholding the Funds

The money you lose from working doesn't affect you immediately. Instead, it affects the Social Security you receive the following year. For instance, if you make $10,000 more than allowed in a year you don't turn full retirement age, you'd lose $5,000 of Social Security. The Social Security administration doesn't divide the recouped funds equally through the year but taken from the monthly payments until you repay the entire amount. Therefore, if your benefit were $1,000 per month, you'd receive no Social Security payment for five months.

Income That Counts

Investments and other retirement benefits don't count against your Social Security benefits, only earned income counts. Income earned in the previous year but paid in the following year also doesn't count against your benefits. Sick leave and vacation pay or bonus pay are examples of these types of income. For the self-employed individual, income counts in the year you receive it. However, there is an exception to the rule and that's if you received payment after you started benefits but earned it before you began.

The Year of Early Retirement

If your earnings are substantial in the early part of the year but you take early retirement mid year and they drop, Social Security Administration won't take back benefits as long as your income for the months you receive Social Security is less than $1,180 for the months you were received the benefits.

Recalculation

Even if you took benefits early and earned a high enough income to reduce the benefits or eliminate them, the SSA adjusts your pension at normal retirement age to reflect the loss and offer a higher benefit.

Photo Credits

  • senior fisherman image by Pix by Marti from Fotolia.com