Your social security retirement age has an impact on your social security retirement benefits. What is the best age social security to retire? Yes, you can collect social security benefits and work at age 62, that is the simple answer. But, if you are younger than full retirement age and earn more than certain amounts, your benefits will be reduced. So, how does working affect your social security benefits.
Many of today's baby boomers are considering taking social security benefits as soon as they become eligible. This is a very important decision that can have a major impact on a person's financial situation throughout the rest of their lives.
Let's review the somewhat tricky Social security rules that baby boomers will have to navigate through in order to collect social security benefits before full retirement age and still work:
If you apply for Social Security Benefits when you first become eligible at 62 years and one month, your social security benefit payments will be permanently reduced to 75% of your PIA.
Your reduced social security benefit payment amount would be increased annually for any cost of living increases.
The maximum amount that you can earn before Social Security Benefits are withheld is $14,160 in 2011(earnings test).
Special rule for the first year that people retire before full retirement age.
Sometimes people request Social Security Benefits in the latter part of the year may have already earned significantly more than the yearly earnings limit. For example, Joe Smith retires in August 12, 2011 (at age 62) and he earned $90,000.
•His monthly Social Security Benefit Payment amount($2,230 if he takes it at age 66) is reduce by 25% to $1,672
•From September through December of 2011, Joe will receive a check from Social Security Administration if his monthly earnings are under $1,180. If he earns more than $1,180 in any of these months Social Security Administration will withhold the check for that month.
Lets continue with our example of Joe Smith, from January 1, 2012 through December 31, 2014 he earns $30,880 annually (we are not adjusting pay or the earnings limit for inflation.)
•Annual earnings W2 $30,880
•Earnings limit $14,160
•Excess earnings $16,720
•For every $2 of W2 earnings over limit withhold $1 in benefits $8,360
• Social Security Administration would withhold check for the first 6 months each year from 2012 through 2014 $8,360/$1672
•Because 6 months of Joe Smith's retirement social security benefits were
Reduce for 3 years; his social security benefits will be increased starting at age 66
To take into account those months in which social security benefits were withheld.
Special rule for last year of earnings before full retirement age
Let's continue with our example of Joe Smith from January 1, 2015 through August 12, 2015(his full retirement age). Joe Company needs him to cover for a sick employee.
•Annual earnings W2 $44,368
•Earnings limit 2015 $37,680
•Excess earnings $5,016
•For every $3 of W2 earnings over limit withhold $1 in benefits
•Social Security Administration would withhold check for the January 2015 $1672/$1672
At age 66, Joe Smith's monthly social security benefit will be increase to take into account those months that his social security benefits were withheld staring from age 62 and 1 month.
The first full month that Joe Smith turns 66(full retirement age), he can earn as much money as he can and there will be no further social security benefit reduction.
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