How Work Affects Social Security Benefits
Monthly Social Security benefits are paid to individuals for a number of reasons, including retirement, disability, and death. If a Social Security recipient also works, some of the benefits may be reduced if the income earned exceeds certain dollar amounts.
However, the month an individual reaches “Normal Retirement Age,” or NRA, Social Security benefits are no longer reduced, regardless of the amount of income earned.
NRA is the age at which an individual can expect to receive 100% of his or her normal retirement benefit, without reduction for early retirement. For those born in 1937 or earlier, NRA is age 65. For those born after 1937, NRA gradually increases until it reaches age 67 for those born in 1960 or later.
Example (1): An individual begins receiving Social Security benefits at age 63 in January 2014, with an entitlement of $500 per month. If the retiree works and earns $25,480 during the year, he or she would have to give up $5,000 of Social Security benefits ($1 for every $2 over the $15,480 limit), but would still receive $1,000.
Example (2): Assume an individual reaches NRA in November 2014. Also assume the individual earns $53,280 during the year, with $44,400 of this amount being received in the first 10 months of the year. The individual would give up $1,000 in benefits, $1 for every $3 earned above the $41,400 limit. Assuming a Social Security retirement benefit of $500 per month, the individual would still receive $4,000 out of $5,000 for the first 10 months of the year. Full benefits of $1,000 ($500 per month) would be received for November and December, after NRA was reached.
What Counts as Earnings?
Any wages earned after retirement from work as an employee and any net earnings from self- employment count as earnings. Wages include bonuses, commissions, fees, vacation pay, pay in lieu of vacation and cash tips of $20 or more in a month.
What Doesn’t Count as Earnings?
Benefits Withheld Restored at Normal Retirement Age (NRA)
When an individual has had benefits withheld as a result of the Social Security retirement earnings test, these “lost” benefits are later restored, beginning at NRA. In the benefit re- computation at NRA, the actuarial reduction that was applied in the initial computation (because the individual applied for benefits early) is adjusted (lessened) to reflect the number of months that he or she received no or partial benefits as a result of the earnings test. A larger benefit is then paid, beginning at NRA.
For example, assume a worker claims Social Security retirement benefits at age 62. He then takes a part-time job which, over time, results in 12 months of benefits being withheld. Once the worker reaches NRA, his retirement benefit will be re-calculated, in this case as if he had first taken Social Security retirement benefits 12 months later, at age 63, rather than at age 62. This recalculation effectively “recaptures” the benefits earlier withheld.
If spousal benefits are withheld under the earnings test, they will be adjusted upward when the spouse (not the worker) attains NRA. For a spouse who has already reached NRA, there is no subsequent adjustment to benefits to take into account months for which no or a partial benefit was paid as a result of the earnings test.