If you're between 62 and full-retirement age, the month you apply for Social Security retirement benefits to begin can impact the amount of monthly benefits you receive if you continue to work part-time. You could receive your full monthly benefits due even if your annual employment income exceeds limits set by Social Security, but only in the first year you retire.
The Social Security Administration sets limits for employment income that people receiving Social Security benefits can earn before benefits are reduced. If you apply for benefits before full retirement age, the SSA will deduct $1 for every $2 you earn. For people born from 1943 to 54, the full retirement age is 66. It gradually increases to 67 for people born in 1960 or later. The annual employment income limit for 2015 was $15,720. You can apply for benefits as early as age 62.
First Year Rule
The SSA has a special rule for the first year you apply for benefits while under your full retirement age. This allows you to receive a full benefits payment for any month the SSA considers you retired, even if your total income exceeds the annual limit. For instance, if you worked full time for the first four months of the year and earned $40,000, that amount would not reduce the monthly benefits you receive for the remaining months when you’re retired. Delaying your retirement for a few months can substantially increase your annual income for that year without decreasing subsequent benefits.
Monthly Income and Work Limits
Under the first-year rule, the SSA provides a full monthly benefit payment for each month the SSA considers you retired. You are retired under Social Security criteria if you make less than one-twelfth of the annual income limit in a month. If you are self-employed, the SSA also requires that you do not “perform substantial services” to your business. The government agency defines substantial services as devoting more than 45 hours per month to your business, or 15 to 45 hours to a business “in a highly skilled occupation.” The rule prevents a business owner from foregoing his salary while still running his company.
In any month that your income exceeds the monthly limit, the SSA considers you to be working full time, and you would not receive a benefit payment if your annual earned income exceeds the Social Security limit. A full benefit payment could return the following month, however, if you return to working part-time and your monthly income again falls below the limit.
When Not to Delay Drawing Benefits
While the first year rule can benefit people who earn substantial income and choose to apply for Social Security benefits but still work part time, applying for benefits to start early in the year could be an advantage if you estimate your annual income will be below the annual limit. In that case, you can receive full benefit payments or minimally reduced benefits while still working. If you do not accurately estimate your annual income and exceed the annual limit, the SSA will reduce your benefits in the following year to recover the amount overpaid.