Because of a prior rule, some people still think there are limits on how much you can earn and still collect all of the social security to which you are entitled. That is still true for people who opt to take social security before full retirement age (age 66 for those retiring now). However, those working after full retirement age can have unlimited amounts of earned income and still collect their full social security benefit. Here’s the rule and then let’s look at an example.
Rule: If you are under full retirement age when you start getting your Social Security payments, $1 in benefits will be deducted for each $2 you earn above $15,720 (for 2016). In the calendar year you attain full retirement age, $1 benefits will be deducted for each $3 you earn above $41,880 (for 2016) up to month of full retirement age attainment.
Mrs. Smith, age 62 in March of 2016 decides to retire from employment and start her reduced social security benefits at the rate of $12,000 annually ($1,000 per month). She also decides to start a business. By age 63, her business is earning a net profit of $20,000 annually. She will need to give up $2,140 ($20,000-$15,720/2) of her annual social security for this reason: During those months before you reach full retirement age (age 66 for someone born in 1953 like Mrs. Smith), your social security benefits are reduced $1 for each $2 you earn over $15,720 (for 2016).
Mrs. Smith keeps working at her business and by 2019, the year she reaches full retirement age, her business is earning $50,000 annually. For January and February of 2019 (assuming rates don’t change), she must give up $451 of social security ($1 for every $3 her business earns over $41,880 in the year she reaches full retirement age, prorated for 2 months) and once March 2016 arrives and she becomes 66, she can earn unlimited amounts from her business and will never give up any social security income.
For the test above, earnings include bonuses, commissions and vacation pay, but don’t include pensions, annuities, investment income, interest, veterans or other government or military retirement benefits.
Best of Both Worlds-File and Suspend
The benefit below is restricted as follows:
- The lower-earning spouse will have needed to turn age 62 before 2016.
- The higher-earning spouse will need to file and suspend before April 30, 2016.
- The higher-earning spouse must be age 66 before April 30, 2016.
If all 3 conditions are not met, then the file and suspend strategy will no longer be available. The new replacement rule after 4/30/16: the lower-earning spouse can only file and receive spousal benefits if the higher-earning spouse is also receiving benefits.
File and Suspend Before 4/30/16
In order for your spouse to get benefits based on your social security account, you are required to file for benefits. However, you may not want benefits now because of waiting, you can collect more later. There may be a way to have your cake and eat it too (if the above three conditions are met by 4/30/16).
If you have reached full retirement age (see earlier table) then you can file for benefits but tell the Social Security Administration to hold up on the payments. Now that you have filed, your spouse can file for their spousal benefit.
Now, you can earn delayed credits up to age 70 so you can get a larger check later while your spouse enjoys up to half of the benefits today
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