Troy Sharpe: How much money can you earn while receiving Social Security before the government starts to take your paychecks away?
Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, CERTIFIED FINANCIAL PLANNER™ Professional (CFP®), and host of The Retirement Income Show. Take a moment to hit the Subscribe button. If you like this video, I want you to share it with a friend or a family member at the end, because we’re going to help you keep more of your Social Security checks. Social Security has what they call the earnings limit. This means you can earn up to a certain amount of money before they start to take your Social Security checks away.
If you take Social Security and you have a job, you have to be very cautious of how much income you make, or you’ve taken Social Security for no reason. If you are less than full retirement age, and full retirement age is a magic number, when you receive your Social Security statement, it usually is bolded on that front page there on the inside, where it says your full retirement age is 66 and a half, or 66 and eight months, or maybe age 67. That’s the magic number when it comes to Social Security. Everything revolves around your full retirement age.
Prior to your full retirement age, or FRA, if you earn $18,240 while you’ve taken Social Security, for every $2 you earn above that limit, they’re going to take away $1 of your benefits. Let’s say you’ve taken Social Security at age 64 and then you get a job opportunity, and you’re receiving your Social Security check of $1,500 a month, which is $18,000 a year, and your part-time job, you earn $25,000. I made the earnings 25,240 to make the math easy for myself here, because it’s $7,000 above the earnings limit.
You subtract what you’ve earned, or the earnings limit from what you’ve earned, you’re left with $7,000. You divide it by 2, you have a $3,500 reduction in your Social Security benefits. Your new Social Security benefit drops from $1,500 to $1,208 per month, or 14,500 per year. Now, once you become full retirement age, they’re not going to just give you all that money back in the form of a check. What they’re going to do is incrementally increase your retirement paycheck at full retirement age, and it’s spread out essentially over the course of your lifetime, giving you that money back.
They’re going to reduce your Social Security if you take it prior to full retirement age and have earnings above the limit. Now, what type of earnings counts towards this limit? It’s your wages, it’s any tips, any commissions, your salary, but it is not any income from pensions or annuities or interest income, dividend income on your portfolio. The only income that counts towards this calculation is earned income, not investment income or passive income. Very important distinction.
Now, the year that you turn full retirement age, let’s say my FRA is age 67 and I’m going to turn 67 in March, the year you turn your full retirement age, that year, the earnings limit increases to $48,600. Every $3 you earn above this limit, they’re going to take $1 away. In the year you turn your full retirement age, you have a bit more leniency as far as how much income you can make. It’s based on the month that you turn your full retirement age, meaning you can earn that much prior to your FRA before you start to have this reduction.
This is the Social Security earnings limit. Make sure you’re aware of it. If you’re taking Social Security and thinking about getting a job. Again, share this video with a friend or family member, and hit that Subscribe button so you can stay updated when we upload new content.