By Rusty Gloor, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens
Dear Rusty: I will be 65 in August of this year. If I start drawing Social Security on my 65th birthday, how will my Social Security check be affected if I continue working at my full-time job, and take home $1380 every two weeks, until I reach my full retirement age? Signed: Working Senior
Dear Working Senior: Social Security (SS) has an “earnings test” which applies to anyone who collects benefits before they have reached their full retirement age (FRA). There is also a “first year rule” which applies when someone claims benefits mid-year, prior to their full retirement age. The first-year rule says that if you exceed a monthly limit you aren’t entitled to benefits for that month, and that applies for each remaining month in the first year, after your benefits start. Then, starting in 2022, you’ll be subject to an annual earnings limit. Since you will reach your full retirement age in 2022, your annual limit that year will be a bit more than the 2021 FRA-year limit of $50,520 (the earnings limits change annually).
If you claim Social Security to start in August when you are 65, for the remainder of 2021 you’ll be subject to a monthly earnings limit of $1,580. And if your gross earnings for each remaining month in 2021 are more than that (and yours would be), then you won’t be entitled to Social Security benefits for the remaining months of 2021. For clarity, you would also have the option to request that the annual limit ($18,960 for 2021) be used instead of the monthly limit, but at your earnings level you would still be required to repay all of your 2021 benefits (using the annual limit would require you to repay $1 for every $2 you are over the limit).
When you file your income taxes next year, SS will discover you exceeded the 2021 earnings limit and require you to repay all benefits received in 2021. By “repay,” I mean they will give you an option to repay everything they paid you in 2021 in a lump sum, or they will withhold future benefits until they recover what you owe because you exceeded the monthly limit. Alternatively, you could request a less severe repayment plan, but you would need to negotiate that directly with Social Security.
Essentially, if you plan to continue working full time in 2021, it may be wise to simply delay claiming your Social Security for a while, because you will end up needing to return any benefits paid in 2021. You could still claim in August and then inform them you will exceed the limit; in which case they will simply withhold your benefits. But in any case, you won’t be eligible for SS benefits in 2021 at the earnings level you shared.
As explained above, your 2022 earnings limit will be more than the 2021 limit of $50,520 for those achieving FRA, and if you claim benefits to start in January 2022 that higher annual limit would apply. If you’re still working full time at the same earnings level, you probably will not exceed the 2022 annual limit, so your benefits wouldn’t be affected. But if you get a raise and exceed the 2022 limit, SS will want back $1 for every $3 you exceeded the limit by (the FRA-year rate). Of course, since the earnings limit goes away when you reach your full retirement age, you might also consider just waiting until your FRA to claim Social Security and completely avoid the earnings test.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website amacfoundation.org/programs/social-security-advisory or email us at firstname.lastname@example.org.