Your Earnings Limitation While Taking Social Security

As you may already be aware, there are limits to the amounts that you can earn while receiving Social Security benefits.  This factor is covered in detail in this earlier article – Social Security Earnings Tests.

What isn’t clear is just how these earnings impact your benefits in the year that you first begin receiving your Social Security benefits…

If you’re at FRA (Full Retirement Age) or later when you begin receiving your benefits, you have no earnings limit at all.  And if you’re younger when you begin your benefits (as the earlier article outlined) up to the year you reach FRA your benefit will be reduced by $1 for every $2 that you earn over the limit ($14,160 for 2010 and 2011).  During the year you are FRA (before you reach the actual FRA), your benefit will be reduced by $1 for every $3 that you earn over the FRA limit ($37,860 for 2010 and 2011).

What’s important to know is that, prior to starting your benefits, no matter when you start them prior to FRA, you can earn as much as you like.  The earnings limits only apply AFTER you’ve begun receiving your benefits.  In the case of the years prior to FRA, your benefit will be reduced when your monthly income is greater than $1,180 per month, for every month that you are receiving Social Security benefits.  This is just a pro-rated application of the annual limit of $14,160 for 2010 and 2011.

The same pro-rate method is applied for the year of FRA – the monthly limit is $3,155 for 2010 and 2011.

Hope this clears up the Earnings Limit issue during the year you begin receiving benefits.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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A Social Security Owner's Manual

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