Social Security: Explaining Earnings Limits and Cost of Living Adjustments

Ask Rusty - About Social Security's Earnings Test and Cost of Living Adjustments

Dear Rusty: Is there a limit on earnings when you're fully retired? Also, should all retirees receive COLA or is there an exception? Signed: Retired But Wondering

Dear Retired: Your questions are fairly simple but, nevertheless, often perplexing to those wishing to apply for Social Security, because the SS rules are many (over 2,700 of them) and those about to apply for their benefits may be simply unsure and want to avoid a costly mistake. I'm happy to answer your questions and, hopefully, clarify any uncertainties you have on these topics.

Social Security imposes an earnings limit on anyone who collects Social Security before reaching their full retirement age (FRA). If you haven't yet reached your FRA (somewhere between 66 and 67, depending on the year you were born), and you continue to work, there is a limit to how much you can earn before they take away some of your benefits. So, the answer to your first question is, yes, there is an earnings limit ($22,320 for 2024) if you haven't yet reached your full retirement age. If the annual earnings limit is exceeded, Social Security will take away some of your benefits ($1 for every $2 you are over the limit, up to the year you attain FRA when the assessment is less). However, if you have already reached your full retirement age the earnings limit no longer applies, and you can earn as much as you like without consequence. And here's a nuance to be aware of: if you work and exceed the earnings limit, and have some benefits withheld as a result, when you reach your FRA, you will get time credit for any months you didn't get benefits, which will result in your monthly amount being a bit higher after your FRA.

Regarding COLA (Cost of Living Adjustment), everyone, without exception, who has earned a Social Security benefit and reached eligibility age (62) receives the annual COLA increase whether they are already collecting their benefits or not. If you're not yet collecting, the COLA is added to your "primary insurance amount" or "PIA," on which your benefit will be based when you claim. If you are already collecting SS, COLA will be added to your gross monthly SS benefit amount. However, since there was a $9.80 increase in the 2024 Medicare Part B premium, and since the Part B premium is taken from everyone's SS benefit payment, Social Security recipients enrolled in Medicare Part B will not see the full 3.2% COLA in their net monthly Social Security payment. Everyone will receive the COLA increase, but no one enrolled in Medicare Part B will get the full COLA increase in their net SS payment because some of the COLA increase is used to pay their increased Medicare premium.

Social Security's rules are myriad and often confusing, but no question is too simple to be asked. The AMAC Foundation's Social Security Advisory Service is available, at no charge, to answer all your Social Security questions - SSAdvisor@amacfoundation.org via email, or call 1.888.750.2622.

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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