Q & A
I make too much money to get my Social Security benefit? Is that even possible?
Complete Question: I am 63 years old and I was making a pretty decent living until my company started making cutbacks. Now they want me to work part-time, which brings my annual salary to only $25,000. I can’t live off of that, so I decided to go ahead and file now for my Social Security benefit. To my surprise, they told me I make too much money and it’s going to reduce my benefit! Is that even possible? It’s not like I’m making a ton of money!
Answer: Unfortunately, what Social Security is telling you is correct. There is an earnings limit when you are younger than full retirement age, which for you is 66. The earnings limit for the year you turn 66 is more than the years you are 65 or younger, and it’s calculated differently, but we won’t worry about that right now.
At your age in 2015 (the limit increases slightly every year), you can earn a maximum of $15,720 before your Social Security benefits are impacted. After this limit is reached, Social Security will deduct $1 for every $2 you earn. So for you, your Social Security benefit will be reduced by $4,640, which is calculated as follows:
$25,000 – $15,720 = $9,280. Since your benefit is reduced by $1 for every $2 earned over the limit, you divide $9,280 in half.
You did not mention how much your actual Social Security benefit is supposed to be, but to give you an example of how the deduction works, let’s say it is $1,200 per month. Social Security will not pay you a benefit until you reach the reduction amount of $4,640. This means you will not get a benefit payment for 4 months – a total reduction of $4,800 (they will not give you a partial payment). In the fifth month, you will start receiving a full payment of $1,200. Since in the 4th month your benefit was reduced by $160 too much ($4,800 – $4,680), then the $160 will be repaid to you the following January.
This may seem very frustrating, but there is some good news. As you probably know, taking your Social Security benefit early at the age of 63 reduces your overall monthly benefit payment amount. Since you were not paid for four months due to the annual earnings limit, your benefit reduction from early retirement will be recalculated. For example, if your early retirement reduction was based on retiring 3 years (36 months) early at the age of 63, your benefit will now be recalculated as if you retired only 2 years and 8 months (32 months) early because you will get credit for those four months you were impacted by the annual earnings limit.