By Retirement Dictionary Staff
While you can claim your Social Security benefits as early as age 62, doing so could result in a reduction in your benefit amounts if you are still working. While this reduction would be applied only for benefits received before you reach your full retirement age, the level of reduction must still be considered as it may affect the amount you have available to cover your living expenses.
How Your ‘Full Retirement Age” is Determined
The first step towards determining if your Social Security benefits will be reduced is to determine whether they would be received before you reach your full retirement age. Full retirement age is not the same for everyone, and is determined by the year in which you were born. The following table, provided by the Social Security Administration, shows the full retirement age by year of birth.
|
Age To Receive Full Social Security Benefits |
|
|
Year of Birth* |
Full Retirement Age |
|
1937 or earlier |
65 |
|
1938 |
65 and 2 months |
|
1939 |
65 and 4 months |
|
1940 |
65 and 6 months |
|
1941 |
65 and 8 months |
|
1942 |
65 and 10 months |
|
1943–1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 and later |
67 |
|
*If you were born on January 1st of any year you should refer to the previous year. (If you were born on the 1st of the month, we figure your benefit (and your full retirement age) as if your birthday was in the previous month.) |
|
|
Source: Ssa.gov |
|
How Much will be Deducted
The next step is to determine the amount that the Social Security Administration will deduct from your benefits. This can be determined by using the following guidelines, which are provided by the Social Security Administration. This considers your age, and whether you will reach full retirement age in the year that your Social Security benefits are paid.
|
Your Age While Working |
Amount Social Security Administration will deduct from your Social Security Benefits |
|
If you are under full retirement age for the entire year in which you receive Social Security benefits |
$1 will be deducted from your Social Securitybenefit payments for every $2 you earn above the annual limit, which is $15,480 for 2014. |
|
In the year you reach full retirement age |
$1 will be deducted from your Social Securitybenefit payments for every $3 you earn above $41,400, However, the administration counts only earnings before the month in which you reachyour full retirement age. |
|
Starting with the month you reach full retirement age. |
No deductions from your benefits |
The following table gives an idea of the amounts by which your benefits may be reduced.
|
If your monthly Social Security benefit is |
And you earn |
You will receive yearly benefits of |
|
$700 |
$15,480 or less |
$8,400 |
|
$700 |
$16,000 |
$8,140 |
|
$700 |
$20,000 |
$6,140 |
|
$900 |
$15,480 or less |
$10,800 |
|
$900 |
$16,000 |
$10,540 |
|
$900 |
$20,000 |
$8,540 |
|
$1,100 |
$15,480 or less |
$13,200 |
|
$1,100 |
$16,000 |
$12,940 |
|
$1,100 |
$20,000 |
$10,940 |
What Type of Income is Counted
For the purpose of determining whether your benefits should be reduced, only certain income is counted. The following are examples of earnings that are counted, and some that are not counted.
|
Social Security Earnings Limit |
|
|
Earnings that are counted |
Earnings that are not counted |
|
|
Reduction Does not Mean Lost Amounts
While your benefits maybe reduced for amounts received before your full retirement age, such reduction does not result in a permanent loss. This is because the Social Security Administration will increase the benefits that you receive when you reach your full retirement age, so as to make up for the amounts that they withheld before you reached full retirement age.
Exceptions Apply- Check With Your Financial Advisor
The explanation provided above is a high level overview of the rules, and exceptions apply in some cases. Further, you may be able to defer claiming Social Security benefits if you have other sources from which you can receive retirement income. Please contact your financial advisor for assitance with implementing a retirement income strategy that is suitable for you.
