Hello everyone. In today's video, we'll be looking into how much you can earn while on Social Security. This might be a little complex, but be sure to stay to the end to get the full picture.
Social Security provides crucial financial support to millions of individuals in their retirement years or when faced with disability.
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However, many recipients wonder about the potential to earn additional income without jeopardizing their benefits. In this video, we will explore the rules and regulations governing earnings while on Social Security and discuss strategies to maximize your earnings within the allowed limits.
Let's dive deeper into each section to provide more detailed information on earning while on Social Security.
Understanding Social Security Retirement Benefits
Social Security retirement benefits are calculated based on your lifetime earnings.
This is somewhat complex, so it’s better if you listen and watch this video again and take notes. Here we go…
You basically have three terms in these calculations, they are:
- Average Indexed Monthly Earnings
- Primary Insurance Amount
- Full Retirement Age
The Social Security Administration, uses your highest-earning years to calculate your average indexed monthly earnings. They apply a formula to determine your primary insurance amount, which represents the full retirement benefit you are eligible to receive at your full retirement age.
To calculate your primary insurance amount, the Social Security Administration divides your average indexed monthly earnings into three portions and applies different percentages to each portion. These percentages are known as "bend points." The formula aims to provide proportionally higher benefits to individuals with lower lifetime earnings.
Full Retirement Age
Your full retirement age is the age at which you can claim your full retirement benefit without any reduction. The full retirement age varies depending on your birth year, ranging from 66 years to 67 years. Claiming benefits before your full retirement age results in a permanent reduction in monthly payments, while delaying benefits past your full retirement age can increase your monthly payments.
If you choose to claim benefits before your full retirement age, the reduction in monthly payments is calculated based on the number of months you claim benefits before reaching your full retirement age.
The reduction is typically around 5/9 of 1% per month, up to 36 months before your full retirement age. If you claim benefits more than 36 months before your full retirement age, an additional reduction may apply.
Conversely, if you delay claiming benefits past your full retirement age, you can earn delayed retirement credits. These credits increase your monthly benefit amount by around 8% per year until you reach age 70. Delaying benefits can significantly boost your lifetime earnings from Social Security.
Earnings Test
The earnings test is applicable if you choose to work while receiving Social Security retirement benefits before reaching your full retirement age. It determines whether your earnings will affect the amount of benefits you receive.
It's important to note that the earnings test only applies to retirement benefits, not disability benefits.
Earnings From Age 62 to Year of Full Retirement Age
If you are below your full retirement age throughout the year, your earnings may be subject to an annual earnings limit.
In 2023, the limit is $18,960. If your earnings exceed this limit, the Social Security Administration will withhold $1 for every $2 earned above the limit. However, the withheld amounts are not lost permanently but recalculated once you reach your full retirement age. At that point, your monthly benefit will be adjusted to account for the withheld amounts, resulting in an increased monthly payment.
In the year you reach your full retirement age, the earnings limit increases to $50,520. The withholding amount decreases to $1 for every $3 earned above the limit but applies only until your birthday month. From your birthday month onward, you can earn any amount without any reduction in benefits.
It's important to remember that earnings from work-related activities count towards the earnings test. This includes income from wages, self-employment, and bonuses. However, income from pensions, investments, rental properties, and other sources generally does not count towards the earnings test.
Earnings After Reaching Full Retirement Age
Once you reach your full retirement age, you can earn any amount without affecting your Social Security benefits. Your benefit amount is no longer subject to reduction, regardless of your earnings. This means you can earn as much as you desire while receiving your full Social Security benefits.
Strategies to Maximize Earnings
Delaying your Social Security claim beyond your full retirement age can significantly increase your monthly benefits. For each year you delay benefits, your monthly payments increase by around 8% until age 70. This strategy is particularly beneficial for individuals who can afford to wait and have a longer life expectancy.
If you choose to work part-time while receiving Social Security benefits, ensure your earnings stay within the allowable limits to avoid benefit reductions. Planning your work schedule accordingly can help optimize your income while maintaining your benefits. Consider adjusting your hours or negotiating a lower salary to stay within the earnings limits.
Depending on your overall income, a portion of your Social Security benefits may become subject to federal income tax. The exact taxability threshold varies depending on your filing status and combined income. Understanding the tax rules can help you plan your earnings effectively and minimize any tax burdens.
It's highly advisable to consult with a financial advisor or Social Security expert to create a personalized plan that maximizes your benefits while allowing you to earn additional income. They can help you analyze your specific situation, consider factors such as life expectancy, and provide guidance on the best strategies to optimize your earnings while on Social Security.
Maximizing earnings while on Social Security requires a solid understanding of the rules and limits set by the Social Security Administration. By familiarizing yourself with the calculations behind benefit amounts, the impact of early or delayed claiming, and the earnings test thresholds, you can make informed decisions to optimize your income.
Remember, seeking professional advice and staying informed about any changes in Social Security regulations will ensure you make the most of your retirement years while maintaining a comfortable financial position.
I hope this video has provided you with valuable insights and information on how much you can earn while on Social Security, but also make sure to check out my video on “Retirement Income Sources”.
Thank you so much for watching and subscribing, and I wish you a happy and fulfilling retirement.