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Prior to the passage of the Senior Citizens Freedom to Work Act in 2000, the earnings penalty applied all the way until age 70. Prior to that, working seniors were limited in how much they could earn before age 70.
The Senior Citizens Freedom to Work Act changed that to your full retirement age (FRA).
For many years the FRA was 65. For people born prior to 1938, FRA was 65.
For Americans born in 1960 or later it is 67. For Americans born between 1943 and 1954, it is age 66. For people born after 1938 and before 1943 there was a sliding scale of 65 plus so many months before they reached their exact FRA. If you were born after 1954 but before 1960 there is a similar scale of 66 plus months for you to calculate your exact FRA.
If you are between age 62 and your FRA there is a limit to what you can before the government withholds some or all of your Social Security benefits.
Remember this is an earnings penalty and not a tax. Social Security has a benefit formula at FRA to treat the months that you did not receive a check as if you had not elected benefits for that month.
According to the Social Security Administration (SSA)
The earnings limit for workers who are younger than the "full" retirement age (see Full Retirement Age Chart) will increase to $22,320. (We deduct $1 from benefits for each $2 earned over $22,320.)
The earnings limit for people reaching their “full” retirement age in 2024 will increase to $59,520. (We deduct $1 from benefits for each $3 earned over $59,520 until the month the worker turns “full” retirement age.)
There is no limit on earnings for workers who are "full" retirement age or older for the entire year.
Here at Trustway Accounting, we understand the importance of planning for a secure and comfortable retirement. Social Security plays a vital role in that plan, providing a foundation of income for millions of Americans.
Social Security offers a variety of benefits, including:
Retirement benefits: This is the most common benefit, providing monthly payments to qualified individuals upon reaching retirement age.
Survivor benefits: These benefits offer financial support to the spouses and children of deceased workers who contributed to Social Security.
Disability benefits: These benefits provide financial assistance to individuals with disabilities who are unable to work.
Understanding how your income can affect your Social Security is crucial for making informed choices about your retirement.
The good news is that you can continue earning money without jeopardizing your Social Security benefits once you reach your Full Retirement Age (FRA). This age varies depending on your birth year; you can find the exact age for you on the Social Security Administration website: Social Security Administration.
Here are some ways to continue earning income after reaching your FRA:
Work for a traditional employer: There is no limit on your earnings from a traditional job after your FRA.
Start a business: Owning your own business allows you to set your own hours and continue generating income.
Invest in income-producing assets: Dividends from stocks, interest from bonds, and rental income from real estate can all supplement your Social Security benefits.
Important Note: There are limitations on how much you can earn before your FRA without facing a reduction in your Social Security benefits. For the most up-to-date information on these limits, please refer to the Social Security Administration website.
For pre-retirees: Maximize your Social Security benefit by working until your FRA or later, if possible. Consider ways to generate additional income streams for your retirement years.
For retirees: Explore options for continuing to earn income after your FRA, such as part-time work, consulting, or starting a small business. Remember to stay updated on the latest Social Security regulations regarding income limitations.
For those already receiving benefits: There are resources available to help you manage your finances and optimize your Social Security benefits. Trustway Accounting can help you navigate these complexities.
During the year that you attain your full retirement age, the exempt amount increases to $40,080, and for every $3 you earn above the exempt amount, $1 will be withheld from your Social Security benefits.
If you are working for somebody else your gross wages or salary is considered to be earned income by Social Security. If you are self-employed then only your net earnings count in the earnings test. Unlike income tax calculations employee contributions to pension or retirement plans are included in gross wages by the Social Security Administration.
This only applies to active earnings. Government benefits, investment earnings, interest, pensions, annuities, rents, and capital gains are not considered earnings by Social Security and do not apply toward the calculation of the earnings penalty.
Social Security is a cornerstone of retirement planning. By understanding how your income interacts with Social Security benefits, you can make informed decisions to secure your financial future. Trustway Accounting is here to help you navigate the intricacies of Social Security . Give us a call today at 205-463-5260
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