What Is the Limit to Earning & Collecting Benefits from Social Security?

Retiring from full-time employment does not mean that work stops. Since Social Security only covers about 40 percent of the income needed for retirement, the retiree must have other sources of income. Investments and other retirement sources, including savings, provide some of the shortfall, but continued employment offers more money coming in.

History

The goal of Social Security was never to provide all a person's needs for retirement. Development of this social program was to help provide a more secure retirement, learning from the lessons of the Great Depression. Estimates are that more than half the elderly did not have the means to be self-supporting in 1934. Individuals and states touted numerous pensions, but the Committee on Economic Security established by President Franklin D. Roosevelt was the creator of the Social Security Act in 1935. This program has survived for 70 years with many successes.

Significance

Whether you collect Social Security retirement benefits at the minimum age of 62 or at full retirement age (currently 66 or 67), or even later, the concern about earning more money than is allowed under the regulations looms. If Social Security does not provide all retirement needs, the retiree does whatever it takes to live comfortably. This includes employment, either full time or part time.

Potential

The American worker can retire at age 62 and receive 75 percent of the Social Security benefit he can get at full retirement age, as defined by the regulations. However, a reduction of Social Security benefits occurs as a penalty imposed on work income. The retiree can make $14,160 in 2010 without penalty. Income over that amount subjects the worker to a penalty of $1 for every $2 he makes in excess of $14,160.

Once the worker reaches full retirement age, earnings are unlimited. No penalty applies after full retirement age.

Considerations

Early retirement has been an option for many unemployed Americans as they reach age 62. Although the penalty affects immediate benefits, the worker does not lose these benefits completely. Recalculation of benefits occurs at full retirement age, and the recalculation takes into account the penalty months. Accepting Social Security retirement benefits early may be a temporary solution to unemployment, suggests the AARP.

Benefits

The most benefit comes from working the year you reach full retirement age. There are special income allowances in effect for that year. In 2010, the worker could earn $37,680 in the year of full retirement age (66 or 67) without penalty. Notify the Social Security Administration early in the year that you intend to collect Social Security benefits and avoid penalty for any earned income amounts under the provision in effect the year you retire.

References

• AARP: More Taking Social Security Benefits Early Because of Economic Hardships
• Social Security Online: Historical Background and Development of Social Security
• Social Security Online: Publication 05-10035 - Retirement Benefits
• AARP: Social Security Alone Isn't Enough
• AARP: 10 Things You Should Know About Social Security