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What Every Investor Should Know About Planning And Saving For Retirement
I want to talk about Working While Collecting Social Security Benefits. More specifically, I want to talk about working while collecting Social Security before your full retirement age.
So this is a topic that I think has been a little bit confusing for some people, hopefully after watching today’s video, things will make a little bit more sense for you. So, as you may know, if you’re working and collecting Social Security benefits before your full retirement age, the Social Security Administration has some limitations as to how much income you can earn for the year. For 2017, the number is $16,920. If you earn more than that $16,920, you’re going to have to pay back $1 in benefits for every $2 that you earn over the limit. So to kind of make this really simple, if you’re say $10,000 over that earnings limit, you’re going to have to give back half of that, or $5000, you’re going to have to pay back to the Social Security Administration.
The first thing is that if you’re going to be working and collecting Social Security benefits, really put some thought into it and make sure that you’re going to be underneath that earnings limitation because if you end up over that, things can really get a little bit complicated and I’m going to share with you at the end of this video a real example of one of our clients that ended up having a situation that ended up being pretty confusing, so I think you’ll hopefully find that interesting, so make sure you actually need that, make sure you’re going to be under the earnings limitation.
Now, there’s a couple of exceptions to that earnings limit. One is in the very first year that you apply for and begin collecting your Social Security benefits, in that first year, you’re allowed to receive a full, un-reduced Social Security check for any month that the Social Security Administration considers you to be retired. For 2017, that limit is $1410 for the month, so if you earn less than $1410 for the month, you’re going to be considered retired and you’re going to be able to receive a full Social Security check. Where that number came from, that’s simply that $16,920 divided by 12, comes out to be that $1410. So a quick example of that, let’s say that you’re planning on retiring at the end of August, so you’re going to receive your first Social Security check in September, you can earn as much as you earn for those first eight months of the year and then as long as you earn less than that $1410 from September through the rest of the year, you’ll be able to collect that full Social Security check.
The second exception to that earnings limitation is in the year that you turn full retirement age, so the limitation for that year is $44,880, so you’re allowed to earn in the months prior to the month that you turn your full retirement age, you’re allowed to earn up to $44,880. After you reach full retirement age, you can earn as much as you want with no reduction in your Social Security benefit so another quick example of this is let’s say that, doing things simple, let’s say your birthday’s on July 1st so in that first six months of the year, as long as you earn less than $44,880, and then you can earn as much as you want after July 1st, there’s going to be no reduction in your Social Security benefits so hopefully that part makes a little bit of sense for you, I’m going to share with you now our example here from one of our clients that ended up in a situation where he had to pay back some of his Social Security benefits and like I said, this stuff can get really confusing.
So one thing, I guess, before I get into this story, that you may or may not know, and this is part of the area that does get a little confusing for some people, if you end up in a situation where your Social Security benefits are withheld, they’re not lost forever. Social Security will do a recalculation of your benefits when you reach your full retirement age and they’re going to give you credit back for any month that you ended up having your Social Security benefits withheld. So this particular client retired and he began collecting Social Security benefits right away at age 62 but about 15 months after he began collecting Social Security benefits, he got a job offer to go back and work at his old company in a contract position. So he didn’t really understand fully the repercussions of earning over that Social Security earnings limitation so he ended up in a situation where he had to pay back really all of his Social Security benefits. But this is actually his Social Security statement for 2015 here, and just to give you an idea of how confusing this can be, I’m going to read you a couple lines from this. So, “We paid you $12,165.30 less than we should have for “2013, we paid you $998 more than we should have for 2014, “we paid you $170 more than we should have so far this year. “After all adjustments, we owe you $10,997.30.”
So sometimes it takes Social Security really even a couple of years to kinda catch up and figure out how all of those adjustments are going to work. I went through all of his Social Security statements and we think they got it pretty much right but it was pretty difficult to really figure out exactly what was going on with all of that. So the moral of the story is that if you’re planning on working before full retirement age and you’re going to collect Social Security benefits, number one, make sure you need them, maybe you can, maybe the income that you’re going to earn by continuing to work is enough to basically live off of that and you can earn some delayed retirement credits and build up that Social Security benefit to at least your full retirement age. But if you are going to work and collect Social Security benefits, make sure that you’re under that earnings limit for the year because if you start having to repay some of those Social Security benefits, things can get pretty confusing.
What I Do
I help individuals make the transition from working to retirement.
As you approach retirement you will be making some of the most important financial decisions of your life. Most of these decisions don’t get a do-over, once you’ve made them your stuck.
My goal is to help you get the most out of your retirement resources. I do this by coordinating and optimizing what I call the 7 Core Elements of Retirement Planning.
It all starts with a plan!
We use advanced financial planning software to help you understand your retirement cash flow so you know where the gaps are.
Understanding your retirement gap is the foundation to getting the most out out of your retirement resources and avoiding costly mistakes.