Working while Receiving Social Security

if you want to collect Social Security benefits while you are working what are the rules that is the subject of this video [Music] hey welcome back to another episode of the financial fast line my name is Lane Martinson and so if you want to claim Social benefits while you're working there are some very specific rules that you need to be aware of and so what we're talking about here are retirement benefits not to be confused with Social Security disability benefits or SSI um those have a completely different set of rules so retirement benefits are only for those who have worked for a minimum of 10 years or 40 credits and they have paid the FICA tax into the social security system and so you become eligible to claim benefits at age 62 is the earliest age so 62 you can choose between there all the way up to age 70. and so if we take a look all the years prior to your full retirement age there is an earnings limit and so there are some penalties associated with claiming early and working which is what we're going to discuss here now once you reach your full retirement age there is no earnings limit you can work you can earn as much as you want and there are no penalties at that from that point on so your full retirement age if you take a look at this chart it's based on your date of birth everyone has an fra it's a full full retirement age based on your date of birth so if you were born between 1943 and 1954 your full retirement age is 66. and then each year after that you add two months and then if you were born in 1960 or later your full retirement age is 67. and so you can just simply look at this chart and see where you fit and just remember the what your full retirement age is because it matters and it does make a difference so to make sure you understand how Social Security Works take a look at my chart here so assuming that your full retirement age in this example is 67 and you if you were to claim your Social Security benefits at age 62 you're going to have a 30 reduction in the benefit and that's a permanent reduction for life now if you wait just one more year it's it's a 25 reduction so a little bit less if you wait till 64 you can see that each year that you weighed the reduction is less and less until you you reach a full retirement age that is the age where you are considered to receive your full benefit and if you delay then you start to earn what's called delayed retirement credits you get a guaranteed 80 percent for each year that you delay you would never want to delay longer than age 70. there are no benefits to delay past stage 70. so that's kind of how that works now the earnings limit is what we're talking about here for 2023 you can claim early and you can continue to work and you can earn up to twenty one thousand two hundred and forty dollars with no penalties so any dollars that any income that you earn over and above that amount it's it's a stiff penalty right one dollar benefits are going to be withheld for every two dollars above the limit so essentially fifty percent above that limit is going to be withheld now in the year that you reach your full retirement age the calendar year they raise the the limit um significantly so if let's say you were to to defer and tell the calendar year that you're going to be reaching your full retirement age and you're still working then you could work and earn fifty six thousand five hundred and twenty dollars as of 2023 these numbers are indexed for inflation so they do ingest up each year and in that year if you were to exceed that threshold then um the penalty is not quite as stiff it's one dollar benefits withheld for every three dollars in earnings above the limit and then like I had mentioned once you reach your full retirement age there is no earnings limit you can earn as much as you want there are no penalties okay now that doesn't mean there's not going to be some taxes on your Social Security benefits which is really a whole different subject and I have other videos that explained how that works but so does it make sense to claim your Social Security benefits early while you're working if you have significant earned income most of the time it's not going to make sense so I'm going to share with you a lot of the common questions I get and comments around this subject that I think you'll find helpful so what does count towards the earnings limit is W-2 income in other words wages right or net earnings from self-employment that's really it it's basically money that you're earning because you are working so what doesn't count dividends that you might be receiving off of Investments interest from savings if you have a pension if you have distributions coming from an IRA or 401ks any types of retirement accounts any capital gains that you might realize through investing if you have any annuity payments all of those are considered sources of retirement income and so those you are not penalized based on those sources of income it is only if you're still working you have wages or net business income okay so some common questions is the earnings limit based on single or joint income this is a good question so if you're a married couple and you're married and filing jointly and one spouse claims early but the other but is not working and the other spouse is working is that going to cause a problem and it doesn't because Social Security is looking at the individual even if you're married filing jointly um it's going to be based on your earnings and your social security benefit okay so if you do claim early and you're working and you exceed the threshold of the earnings limit will that impact spousal benefits so and the answer is yes and so if you you've claimed early you're getting benefit your spouse is getting 50 or the spousal benefit and you exceed the threshold then the penalty is going to impact both benefits in that case because it's off of the same earnings record now there is an exception to that if it's a divorce situation and if if you are claiming a spousal benefit from a former spouse it doesn't matter what that former spouse does it has no impact in that in that setting some people feel kind of frustrated with you know why are these rules like this right so it's I think it's helpful to understand how it came about so full retirement age was 65 originally for many years that was the earliest age you could collect it but then um they actually Congress amended the rules and they allowed women to claim as early as 62 and then five years later they they got around to say well we're going to let men also claim early that was back in 1961. but if you look at this chart here so there's a couple things going on when you claim early you are getting you're you're accepting a lower payment and then if you exceed that earnings limit now it's getting penalized as well and the penalty comes in the form of withdrawal they they stop sending you the payment is what happens and sometimes if you don't inform Social Security that you've exceeded the threshold it might take it might take several years before they catch up they're going to look at your tax returns and so you could be you know several years down the road and all of a sudden your Social Security benefits get turned off because you had exceeded the limit you essentially have a deficit with Social Security and they're going to keep it turned off for kill many months or however however many months it takes for them to recoup the difference so um just want to understand kind of the history of that and so now does it mean that you shouldn't claim early some people it can actually make a lot of sense to claim early but but I think more people they're going to benefit by delaying it's a it's it's a very personalized it's going to be very unique for your situation right one of the common questions that I get is why not claim early and then just invest the money isn't that going to do better than Social Security we look at the numbers and kind of you know analyze it up one side and down the other we have industrial grade financial planning tools that know all the rules and all the intricacies and we're able to run models and and do different comparisons and um most of the time that strategy is it's going to have a significantly more risk involved and probably less income in the end but there are times if you don't if if you you can retire early if you don't need the social security income right you have other sources of income and they're not and it's not from working now that's a scenario where we can make a really strong case because it now allows your other Investments your other accounts it helps them to pres to preserve them and to to for them to grow larger and so now we get into time value of money and opportunity costs which can really make it a very big difference for our retirement plan and so it's it's surprisingly complex the many different issues one of the things that I say often is that optimizing your overall retirement income holistically comprehensively will give you more income in retirement there's a lot of efficiencies there's we're talking about time value of money we're talking about opportunity costs that come into play and when it's all fit together in a in a comprehensive plan it really will result in more income in retirement it's it's mathematical it's quantifiable so one of the advantages that I have you know having been a financial planner for many years talking with many people about their finances there are there's a significant number of people who claimed Social Security benefits add 62 who now 10 12 you know years later in retirement they're really regretting that decision and they're asking the question why how can I fix this or why didn't someone tell me about this right and so you just want to don't make a harsh or a quick decision you want to make sure you're you're making a good decision for your situation again there are there are situations there are people who are claiming your benefits early will make the most sense and will give you the most total income over your lifetime and there are other people who claiming early you're going to leave a lot of money on the table and so just understand that it's it's it's it's quite complex and a good plan goes a really long way so we are a financial planning firm um we have a personalized Social Security analysis report that if you would be interested in that you can give it a look you would just go to socialsecuritylane.com and there's a nominal fee but with your estimated benefits we use your actual numbers do some analysis and show you a variety of options so if you want to consider that I hope you'll look at that um and I hope you found this video educational and beneficial I hope you'll subscribe to our Channel maybe share the video with others and give us a thumbs up I really appreciate it and I look forward to seeing you in the next episode of the financial Fastlane [Music]

Channel: Financial Fast Lane

Views: 1,047,628

Keywords: working and social security, working and drawing social security, social security benefits, retirement planning, working while collecting social security, social security and working in retirement, social security earnings limit, social security increase for 2023, social security benefits at age 62, taking social security at 62 and still working, social security earnings limit 2023, drawing social security at 62 and still working, working and drawing social security at 62

Id: nsSViIHIm3k

Length: 14min 21sec (861 seconds)

Published: Sat Feb 25 2023