The Income That Impacts Social Security Benefits
Social Security plays an important role in replacing earnings in retirement as well as supporting the disabled and families of workers who have died. It is crucial to understand how other income will affect your benefits. Social Security retirement benefits are affected both positively and negatively by a person's other income, depending on his situation.
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Income While Working
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The vast majority of workers in the United States are enrolled in Social Security and pay taxes into the program. Wages up to $106,800 (2009) are taxed for Social Security. The longer a person works and the higher her average taxed wages, the higher the future benefits from the program. Wages over $106,800 and investment income do not affect benefits as they are never taxed for Social Security.
Income While Retired
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When a person starts drawing Social Security before his full retirement age, 66 as of 2010, earned income can reduce Social Security benefits payments. A retiree on early retirement can earn $14,160 without reducing retirement payouts. For excess earnings, $1 of Social Security benefits is deducted for every $2 of wages over the limit. This can potentially eliminate all Social Security payouts. However, at full retirement age, when the retiree begins to collect full benefit payments regardless of other income, those payments are increased to compensate for any money withheld because of earned income during early retirement.
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Income While on Survivors Benefits
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If a worker dies, his family will be eligible for survivors benefits that will be paid out to dependent children, a spouse caring for dependent children, and to a spouse who is 62 or older. Income earned by the spouse and by the children will not reduce the Social Security survivors benefit. Survivors benefits can be reduced by pension payments from a group that had not been paying into Social Security; for example, a pension from a government organization.
Income on Disability Benefits
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The Social Security definition for disability is total disability. To qualify, a person must be judged to be unable to perform any sort of work. As a result, this individual will not be earning any income to impact her disability benefits. Income received by a spouse will not reduce benefits. Disability benefits from federal, state or local disability programs will reduce Social Security benefits to the extent that total benefits exceed 80 percent of average earnings prior to disability.
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References
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