More than half of Americans surveyed by Voya Financial plan to work in retirement. If you share this plan, you can assume that you can easily combine paid employment with other sources of retirement income, such as your retirement savings and Social Security.

However, if you apply for Social Security before your full retirement age – which is based on your year of birth – your benefits may be reduced through a mechanism known as the Social Security Income Test. Essentially, this rule limits your benefits if your paid work income exceed certain thresholds.

The good news is that once you reach full retirement age, the benefit amounts that were withheld due to the income test will be returned to you during future Social Security payments. However, it doesn’t help when you’re trying to balance your budget during the early years of retirement.

How the earnings test works

The impact of the earnings test on your performance can be broken down into three distinct phases. Each phase is based on your current age relative to your full retirement age.

  • Step 1: You will not reach full retirement age in 2021: At this point, you can earn up to $ 18,960 per year from a job without affecting your Social Security benefits. There will be a reduction of $ 1 in Social Security payments for every $ 2 of earnings over the limit of $ 18,960. In the event of a reduction, Social Security withholds benefits in the form of full payments at the start of the year. If Social Security withholds too much, it means the money will be paid back over the next calendar year.
  • Step 2: you will reach your full retirement age in 2021 If you reach full retirement age in 2021, the income test is much less restrictive. You can earn up to $ 50,520 per year from a job without affecting your benefits. There will be a $ 1 reduction for every $ 3 of winnings over the $ 50,520 limit.
  • Step 3: You have reached your full retirement age before 2021: If you have already reached full retirement age before 2021, the income test does not apply to your income. You are free to earn as much as you want while receiving your full benefit.

Special rule: A special rule exists for declarants entering phases 1 and 2 who retire mid-year. Regardless of your income, if you stop receiving employment income after receiving Social Security, you can receive your entire allowance without reduction due to the excess income test.

Initiation of social security application

The amount of your Social Security benefit depends on your income and your age. Social security assesses all benefits around the concept of full retirement age, which for people born between 1943 and 1960 is between 66 and 67 years old.

At full retirement age, you receive what is known as your full benefit or primary insurance amount (PIA). If you benefit from Social Security before the full retirement age, your benefit is reduced. Likewise, if you apply after full retirement age, your benefit is increased.

The earliest you can claim for social security is 62; you can claim at the latest to receive the maximum potential benefit is 70 years.

Social security full rate retirement age table

Source: U.S. Social Security Administration

Management of employment and social benefits

Ultimately, the Social Security income test does not affect the benefits you receive during your retirement, because Social Security will compensate for benefit reductions later when you reach retirement age at rate. full. However, it’s not very comforting when you’re trying to balance your budget in early retirement. This is why it is essential to understand the income test and weigh all of your possible options when making your decision to file for Social Security.

The advisory services offered by JW Cole Advisors, Inc and Blue Financial are unaffiliated entities. No information provided is intended as a solicitation to buy or sell any security. Blue Financial is an independent financial services company that helps individuals create retirement strategies using a variety of investment and insurance products to meet their needs and goals. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
Certified insurance professional. The licensed professional can provide information, but not advice, related to social security benefits. The licensed professional may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. For more information, contact the Social Security Administration office or visit www.ssa.gov. 20988 – 2021/5/3

Partner, Blue Financial

Austin Powell is a wealth advisor at Blue Financial. He holds a Bachelor of Business Administration from North Carolina State University, where he was also an All-ACC tennis player. He obtained the prestigious CERTIFIED FINANCIAL PLANNER ™ certification in addition to being a national social security advisor (NSSA®). He holds a Series 65 Securities License and a Life and Health Insurance License. As a fiduciary, he operates transparently and does what is in the best interests of his clients.



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