Some people continue working after claiming early retirement benefits through Social Security. They may find their earnings from a job necessary to bolster their financial security, or they may simply enjoy their job or appreciate the opportunity to stay active. The Social Security Administration applies an earnings limit, however, which can reduce the amount of retirement benefits that you receive if you continue to work. The deduction ends when you reach your full retirement age, and it does not apply to any period in which you are not working. If you are fired while receiving early retirement benefits, you can get unemployment benefits if you are eligible for them, even though you are also receiving Social Security benefits.
The earned income limit is an annual amount that increases each year. For every two dollars that you earn over the limit, Social Security will reduce your benefits by one dollar. You may think that this just means that Social Security will reduce your check each month by a certain percentage, but it does not always work this way. Instead, you may not receive any benefits at all in certain months to account for the reduction.
Exceptions to Earnings Limit Rules
The earnings limit changes in the calendar year when an individual reaches full retirement age. The earnings limit is calculated by month during that time and is substantially higher than the limit for other years. You will lose one dollar in benefits for every three dollars over the limit that you earn in any month before reaching full retirement age, rather than one dollar for every two dollars over the annual limit.
The earnings limit ceases to apply in the month in which you reach your full retirement age, which will arrive at 66 or 67. However, a self-employed person may not receive their full benefits in a certain month during the first year after full retirement age if Social Security determines that they performed substantial services during that month. This generally means that they spent more than 45 hours during the month working for their business, or 15 to 45 hours if they work in a highly skilled occupation.
You will not need to submit an estimate of your earnings to the Social Security Administration unless you earn a substantial amount of income through your own business or earn very different amounts from one month to the next. Someone who works on commission, for example, might need to submit an estimate at the end of each year for their earnings in the following year. Their benefits for the early part of the next year will be based on this information. The benefits may be adjusted later based on actual tax information for that year. Otherwise, Social Security should be able to calculate benefits by using W-2 forms and tax information for people who are self-employed.
Social Security will review your earnings only until you reach full retirement age, since the earnings limit does not apply after that time.
Recouping Benefits Lost Due to Earnings Limits
Social Security will add back any amounts that were deducted based on the earnings limit rules by slightly increasing your benefit payments after you reach full retirement age. However, it will not pay back the entire amount at once but will extend the payments over a 15-year span. Social Security does not reimburse claimants for the reduction based on claiming their retirement benefits early. This penalty permanently affects the amount of their benefits.