Social Security Earnings Test

November 28th, 2007  |  Published in Social Security  |  2 Comments

If you earn a salary and want to collect benefits from social security, you have to pass the social security administration’s “earnings test.” While the earnings test looks like a penalty on those who collect a salary, it’s really not and I’ll explain why in a moment.

First, to calculate your “penalty,” you have to look at a few factors. Are you under the “full retirement age?” If so, then if you start receiving Social Security payments and earn income, your benefits will be reduced by half of what you earn over the annual limit. The 2008 annual limit is $13,560. If you earned $13,562, or $2 over the limit, then your Social Security payment will be decreased by $1.

In the year of your full retirement age, the “penalty” is 33% of what you earn over an even higher limit. That higher limit in 2008 is $36,120. When you reach full retirement, the reductions end and you are no longer “penalized.”

Why is it not a penalty? It’s not because when you reach full retirement, your benefits are recalculated and those reductions are added back into your balance. In reality, it’s really just delaying your benefits and not reducing them – which is better for you anyway.

  

Responses

  1. » Roundup: Happiness! XBox 360 Has Returned! on Blueprint for Financial Prosperity says:

    December 1st, 2007 at 9:25 pm (#)

    […] discuss what’s known as the social security earnings test, which is when your benefits get deferred at the start of retirement towards the end if you are […]

  2. » Roundup: Happiness! XBox 360 Has Returned! on Blueprint for Financial Prosperity says:

    December 1st, 2007 at 9:25 pm (#)

    […] discuss what’s known as the social security earnings test, which is when your benefits get deferred at the start of retirement towards the end if you are […]