It is important to note that when getting Social Security benefits, there are no restrictions on the amount of money you can earn. However, the main concern for most is that these benefits will be reduced by exceeding the annual income limit set during retirement.
In 2023, the earnings limit to keep Social Security benefits in full is $21,240. Earning up to this amount will not affect your monthly benefit amount. However, when considering applying for Social Security before you reach full retirement age, it is crucial to keep in mind certain specific aspects that may influence the amount of benefits you get.
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In this context, if you decide to apply for benefits before full retirement age, you will be subject to the earnings limit, which in 2023 is $21,240. If your income exceeds this limit, your monthly benefit will be reduced by $1 for each additional $2. It is essential to understand these conditions when making decisions about when to begin receiving Social Security.
Social Security earnings limit
If you claim benefits before you reach full retirement age, you will be subject to the earnings limit, which varies annually and is $21,240 for the year 2024.
If your earnings exceed this amount, you will experience a reduction in your monthly benefit of $1 for every additional $2 earned over the limit. So, for example, by earning $21,242, your monthly Social Security check will decrease by $1 compared to what you would otherwise receive, while not having exceeded that limit will not affect your benefits.
However, the dynamic changes in the calendar year in which you reach full retirement age. For those who reach this milestone in 2024, the earnings limit rises to $56,520.
In addition, benefits will only be reduced by $1 for every $3 earned above this limit, marking an adjustment in conditions as you approach full retirement.
Here is some key information about the income limit:
- The limit only goes into effect if you decide to apply for Social Security before you reach full retirement age.
- The earnings limit increases, reaching $56,520 in 2023, during the calendar year in which you reach full retirement age.
- Beginning with the month in which you reach full retirement age, the earnings limit is eliminated. Your benefits are no longer reduced, regardless of your income.
- The income limit applies specifically to wage and salary income or self-employment income. Pension, annuities and investment income are not taken into account in this calculation.
Special Rule for Your First Year of Retirement
If you decide to retire in the middle of the year and you have already exceeded the income limit, it is crucial to consider a special rule that applies during your first year of retirement, especially if you claim your benefits before you reach full retirement age.
Let’s imagine that at age 62 you retire after working part of the year, say through August, and you’ve already earned $45,000. Despite exceeding the annual limit by $23,760, your Social Security benefit will not be reduced, as long as the additional monthly earnings do not exceed or equal 1/12 of the 2023 earnings limit.
In other words, you will get your full payment each month, as long as you do not exceed the additional $1,770 in monthly earnings. This specific scenario is intended to ease the transition during the first year of retirement, allowing you to get your benefits without significant penalties.
It is important to note that the reduction caused by the income limit is temporary and recoverable over time. Upon reaching full retirement age, your benefit is increased (although not immediately) to compensate for the reduction caused by the income limit.
It is crucial not to confuse the early filing reduction with the earnings limit reduction. Opting into Social Security early results in a permanent reduction in benefits compared to waiting until full retirement age.
Remember that your benefit amount is based on your 35 highest earning years. If you continue to work while getting Social Security, you can increase your benefit amount. Earning more than any of your previous 35 highest years will result in an increase in your primary insurance amount.