If you take SS benefits while still earning, "we deduct $1 from your benefit payments for every $2 you earn above the annual limit"??

[pastoral]

When you go to the ss website where you can see your projected ss benefits for each year you may start collecting, you can customize a little by inputing the average annual income between now and start of benefit collection (e.g. fill in 0 if no more income. I think the default is your current income, but you can replace it with a different non-zero amount), so I'd like to know whether the results take into account of this:

Quote from Benefits Planner: Retirement | Receiving Benefits While Working | SSA

If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.

If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2024, that limit is $22,320.

I'm not sure if I understand the above statement correctly, because it seems to be a big penalty if you collect ss benefits while still working? For exampe suppose your annual income is $80,000. That would be $80,000-22,320=$57680 above the annual limit if you start taking ss but still earning the current salary. $57680/2 = $28,840. Does it mean your ss payments will be deducted by $28840, per year? That would mean deduction of $1903/month, while your supposed ss monthly payment may be even less than that to begin with?! If that's the case then obviously the projected payments shown on the website didn't take this into account, even if you modified the annual income.

What am I missing? I guess I misinterpreted the above statement?

 

[sakowitzm]

I have no idea if this is correct, but my interpretation is that this individual would not receive any SS benefit that year. Kinda/sorta a first world problem, eh? Of course, the correct thing for this individual would be to NOT claim SS yet. They would be reducing their benefit amount forever, only to not actually collect anything at all for a year or more.

 

[Gumby]

That's really how it works. For every $2 over the limit, you lose $1 of social security. However, the increased earnings will continue to increase your Average Indexed Monthly Earnings (AIMA), assuming your salary displaces low earning years, since they only count the 35 highest. That will make your Primary Insurance Amount (PIA) increase, and when you hit Full Retirement Age (FRA), and are no longer subject to the penalty, you will get higher payments. But, yes, if you keep working while you draw SS, are under FRA and exceed the limit, you will be penalized.

The answer is easy -- don't start collecting social security if you are continuing to work in a high paying job and are still under FRA. The rule is easy enough to understand, so I see no reason they should change the calculator, which works perfectly if you simultaneously quit working and start collecting, like most people do.

Edit to add - the penalty is not $1 less social security forever, only until you hit FRA, then it springs back.

 

[sakowitzm]

That's really how it works. For every $2 over the limit, you lose $1 of social security.

So the obvious thing is that this individual should NOT claim yet.

 

[MissMolly]

It's not a permanent loss. Once you reach full retirement age (FRA), your benefits are recalculated and adjusted to begin paying you the amount held back. See: Receiving Benefits While Working. Or, don't claim until you have reached FRA. Once you are FRA they will not deduct anything from your benefits. You can earn as much as you can.

 

[pastoral]

Thanks for the comments. I was hoping to be told I was wrong and the penalty is much smaller . That is no small penalty. Yes they do say it's only up to the full retirement year, and that year you get the last penalty diferently:

In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2024, this limit on your earnings is $59,520. We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year.

So for some people, taking ss payment before retirement is basically not an option.

I was weighing whether to take ss before actual retirement in view of the outlook of the social security fund running out in 2033, but there is this penalty in addition to reduced benefits to make an argument agaisnt it (Or, an argument FOR earlier retirement, before taking ss).

 

[pastoral]

The answer is easy -- don't start collecting social security if you are continuing to work in a high paying job and are still under FRA. The rule is easy enough to understand, so I see no reason they should change the calculator, which works perfectly if you simultaneously quit working and start collecting, like most people do.

Yes, now I understand why they always talk as if your actual retirement is no different than when you start taking SS benefits.

 

[pastoral]

It's not a permanent loss. Once you reach full retirement age (FRA), your benefits are recalculated and adjusted to begin paying you the amount held back. See: Receiving Benefits While Working. Or, don't claim until you have reached FRA. Once you are FRA they will not deduct anything from your benefits. You can earn as much as you can.

Here is a question with the following two differnet scenarios:

(A) You are still working and you claim SS benefit, but because of the above-said penalty, you end up not receiving any SS payments (because your earning is way above the limit). You keep claiming each year while working, and are penalized each year so you always end up receiving nothing despite applying for SS benefits. Until you stopped working/earning.

(B) You are still working and you do not claim SS benefit. You receive nothing because you didn't even claim. You only claim when you stopped working/earning.

In both scenrios you got nothing while working. But after stopping working, and claim SS benefits, you'll get the same amount regardless it's (A) or (B)?

Also, what if I receive not zero, but a little SS payment after the penalty? How will it affect calculation of future payments when you no longer work?

 

[oldtimer]

Here is a question with the following two differnet scenarios:

(A) You are still working and you claim SS benefit, but because of the above-said penalty, you end up not receiving any SS payments (because your earning is way above the limit). You keep claiming each year while working, and are penalized each year so you always end up receiving nothing despite applying for SS benefits. Until you stopped working/earning.

(B) You are still working and you do not claim SS benefit. You receive nothing because you didn't even claim. You only claim when you stopped working/earning.

In both scenrios you got nothing while working. But after stopping working, and claim SS benefits, you'll get the same amount regardless it's (A) or (B)?

Also, what if I receive not zero, but a little SS payment after the penalty? How will it affect calculation of future payments when you no longer work?

I'm no expert, but as I understand it it seems to me that making up a early benefit (that is reduced from PIA) that is not paid does not take into account the reduction amount. SSA is just taking only the early benefit amount not paid and spreading it out of your remaining life when they recalculate. So I believe you will have some level of reduction in your scenario (A) compared to (B).
Your last question when receiving a small amount of the early benefit, there is less amount to spread across your remaining life when they recalculate.

 

[pastoral]

Thanks.

 

[Masquernom]

Also, the year you reach your FRA, you can earn something over $50,000 with no penalty. Then at FRA, the penalty goes away completely.