New Earnings Limits May Result in a Decrease in Your Early Retirement Benefits
According to the Social Security Administration (SSA) you can collect retirement and survivor benefits while working. If you are receiving benefits before Full-Retirement Age (FRA ) you will receive a reduced benefit. FRA for individuals born between 1943-1954 is 66. Taking early retirement at age 62 results in a 25 percent reduction, retiring at age 63 results in a 20 percent decrease, retiring at age 64 has a 13.3 percent drop, and retiring early at age 65 has a 6.7 percent reduction.
For people born later than 1960 FRA age is 67. If these folks retire at age 62 they can expect a 30 percent cut in benefits. If you can wait to start retirement benefits you can get more than 100 percent of your full benefit by gaining Delayed Retirement Credits (DRCs). These additional benefits cease at age 70.
Note: If you are working outside of the United States the receiving early retirement benefits and working rules are different. For details see http://www.socialsecurity.gov/hlp/isba/10/hlp-isba044b-earnwg2-for.htm
The Negative Impact of Working and Receiving Early Retirement Benefits
Individuals who are FRA and working can work as much as they like and their benefits will not be reduced. There are earning limits for early retirees that are receiving benefits and working. These earning limits change each year. In 2014 the maximum early retirees can earn is $15, 480. If you are under FRA for the entire year the SSA will deduct $1 from your benefit payments for every $2 you earn above $15,480.
The SSA provides this example of someone who retires mid-year:
John Smith retires at age 62 on June 30, 2014. He earned $37,000 before he retired.
On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2014 are $40,000.
Although his earnings for the year substantially exceed the 2014 annual limit ($15,480), John will receive a Social Security payment for July, August and September. This is because he was not self-employed and his earnings in those three months are $1,290 or less per month, the limit for people younger than full retirement age.
John will not receive benefits for October, November or December 2014 because he worked in his business over 45 hours per month in all three months.
Beginning in 2015, the deductions are based solely on John’s annual earnings limit. For more information see http://socialsecurity.gov/retire2/whileworking3.htm
Note: Good news, if your earnings for the year are higher than one of the years originally used to compute your retirement benefit, the SSA will substitute the new year of earnings. This can assist in bumping up your monthly benefit amount.
