I just got some good news from the Social Security office via phone. My full retirement age is 66, and while I think I might write part time until I take my last breath, I’d sure like to stop putting in these 80 hour weeks as soon as possible. I read about it online, but didn’t quite get it. So I called, and a very helpful, patient social security rep clarified the following:
- The calendar year I turn 66, even though the day I turn 66 is not January 1, I can make up to $38,880 without any reduction in my social security check. I knew that once I turn 66, I could make as much as I wanted, but the good news here is that even though my birthday is May 28, I don’t have to wait to retire until May. If the money I make January through April is not more than 1/3 (4/12th’s) of $38,880 my social security checks will not be reduced. The calculations: $38,880 divided by 12 works out to $3240 a month. So I can make up to $3240 each month from January through April and still draw a full social security check. If I were to earn more than that anytime prior to May, my social security would be reduced $1 for every $3 over that amount. In May I can make as much as I want. Great news, as I don’t expect to be making more than $3000 a month at that point, anyway.
- The year prior – the year I turn 65, and the year in which I hope to retire – the earnings ceiling (unless it changes from what it is now) will be $14,640. If I decide to start taking my social security in June, the month after I turn 65, what I’ve earned up until June of that calendar year won’t factor into any reduction of my social security check, but as of June it will. For whatever I make each month starting with June that exceeds 1/12th of $14,640 ($1220 per month) my social security would be reduced $1 for every $2 of that overage. While that’s a hefty price to pay, I’m still going to be money ahead each month by taking the social security. What I probably would do (as I’m self-employed and get no vacation pay if I don’t work) is take a month or two off and travel.) I would actually make money doing that, as my income overage would be reduced. Additionally, the extra earnings would positively effect how much I get from social security down the road. (I’ll have more on the latter topic in a later post.)
Obviously, every person has to make her or his own decision about taking Social Security before full retirement age. We all know that early retirement reduces the money we get for the rest of our lives if we do so. SSA actually calculates the changes down to the month, so if you retire in July of the year you turn 65 you’ll get a bigger monthly check than if you retire in February of the year you turn 65, for example.
What’s very important to understand, however, is how the Social Security Administration takes back its money when you make more income than its limit. It is not as simple as “You made an extra $1000 last month, so we’re paying you $500 less this month.” Social Security asks you to declare, before the year begins, how much you expect to earn. If, for instance, the ceiling is $14,640 as it is this year, your retirement check is to be $1000 each month, and you say you’re going to make $15,840 ($1200 over the ceiling) they will NOT simply divide that $1200 by 12 months and reduce each month’s check by $100. They will, instead, give you no check in January (taking back $1000) and $800 in February (taking back $200,) after which you’ll get your regular $1000 check for the rest of the year. In other words, an overage gets paid at the beginning of the overage year, until satisfied. So, it’s important that you budget for these lean early months before you make this leap. You DO get this money back later down the road, however. As I said earlier, I’ll post about that at another time.
How retiring prior to your full retirement age effects your monthly Social Security check:
The annual reduction is approximately 7.6 percent, which works out to a monthly reduction of about .64 percent. In my case, with a full retirement age of 66, retiring at 62 would have given me only 75 percent of my full retirement check. If I do as planned above and retire in June, the month after I turn 65, I will get 93.9 percent of my full retirement check for the rest of my life. Click here to see the month-to-month breakdown for those born between 1943 and 1954. It also shows spouse benefits.
I’ll have more on this later. I am NOT a social security expert – just someone who asked the questions of folks who are. Here’s a very helpful page of the Social Security site, that walks you through sample calculations.