How do Earnings Limits Work Regarding Social Security?

Dear Rusty: My 62nd birthday is in late August of this year. I would like to start collecting Social Security, but after reading about the need to keep my earnings less than $21,240 in the first year it doesn't seem fair to those who have birthdays later in the year. I will have earned a lot by the end of August. Or am I missing the part where the year starts from the day you retire? Or is it a fiscal year? Please elaborate? Signed: Looking Ahead

Dear Looking Ahead: Born in late August, your first month of eligibility for Social Security will be September (you must be 62 for an entire month to be eligible for SS benefits). If you start your benefits in September, for the months of September through December 2023 you'll have a monthly earnings limit of $1,770. If you exceed that limit in any of those 4 months, you won't be eligible for SS benefits in any month that the $1770 monthly limit is exceeded. If you exceed the monthly limit in all of those months, you won't be entitled to any benefits in 2023, unless using the annual earnings limit formula to determine your penalty would result in a lesser amount.

The penalty for exceeding the annual limit is $1 for every $2 you are over the 2023 limit and, if using that formula yields a penalty which is less than for exceeding the 2023 monthly limit for September – December, they will use the annual limit instead of the monthly limit to compute your penalty. Thus, your annual earnings earned before September will only count if using the annual limit will result in less of a penalty than using the monthly limit for the months after your benefits start. If you plan to retire from working before September, then there will be no penalty for exceeding the annual earnings limit prior to that, but if you continue to work full time there will likely be a penalty which will cause Social Security to take away some of your benefits.

Starting in 2024, only the annual earnings limit (which will be a bit more than the 2023 annual limit) will apply to you. Generally, if you continue working full time and will significantly exceed the annual earnings limit, it may be wise to reconsider claiming your Social Security until your income is below or closer to the annual limit each year, or until you reach your full retirement age after which the earnings limit no longer applies. And if you do claim early and exceed the earnings limit, and if you have benefits taken away for some number of months to satisfy the penalty, you'll get time-credit for those months after you reach your full retirement age. That credit will, essentially, move your claim date forward by the number of months you didn't get SS benefits, increasing your benefit amount accordingly after your full retirement age.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation's staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.

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