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I've read materials online until I'm cross-eyed but can't find an answer to this seemingly straightforward question.
The basic rule is that if you retire before full retirement age and earn more than $14,640 (in 2012), the SSA will reduce your benefits $1 for each $2 over $14,640 you earn. However, there is a special rule if you retire in mid-year. For example, if you retire in July 2012 at age 62, this "grace year" rule allows the SSA to ignore your earnings from January through June and focus solely on July through December on a month-to-month basis. In each of those months, you will receive your full benefit check (i.e., your full age 62 amount) if you didn't earn more than $1,220 (1/12th of $14,640) as an employee and didn't perform "substantial services" in a self-employed capacity (substantial services being defined as 15-45 hours per month, depending on the type of work).
My question is: What if you DO earn more than $1,220 in wages or you DO work enough self-employment hours to constitute substantial services? Do you not receive ANY check that month, or precisely what does the SSA do? I even looked at the SSA manual for employees and didn't find a clear answer. Some materials suggest that you indeed don't receive ANY check, while others suggest that you will receive a reduced check - without making clear how the reduction would be calculated.
Does anyone perhaps have real-world experience with this?
"Sometimes people who retire in mid-year already have earned more than the yearly earnings limit. That is why there is a special rule that applies to earnings for one year, usually the first year of retirement. Under this rule, you can get a full Social Security check for any whole month you are retired, regardless of your yearly earnings.
In 2011, a person under full retirement age for the entire year is considered retired if monthly earnings are $1,180 or less. For example, John Smith retires at age 62 on October 30, 2011. He will make $45,000 through October.
He takes a part-time job beginning in November earning $500 per month. Although his earnings for the year substantially exceed the 2011 annual limit ($14,160), he will receive a Social Security payment for November and December. This is because his earnings in those months are $1,180 or less, the monthly limit for people younger than full retirement age. If Mr. Smith earns more than $1,180 in either of those months (November or December), he will not receive a benefit for that month. Beginning in 2012, only the yearly limits will apply to him.
Also, if you are self-employed, we consider how much work you do in your business to determine whether you are retired. One way is by looking at the amount of time that you spend working. In general, if you work more than 45 hours a month in self-employment, you are not retired; if you work less than 15 hours a month, you are retired. If you work between 15 and 45 hours a month, you will not be considered retired if it is in a job that requires a lot of skill or you are managing a sizable business."
The figures will be different for 2012, but the principle is the same. If you go over the $1220 per month, you do not get a check.
If Mr. Smith earns more than $1,180 in either of those months (November or December), he will not receive a benefit for that month.
Yes, the SS website does say that, but I don't believe that's actually how it works. The monthly earnings test is intended to be more generous than the annual earnings test, which would hardly be the case if it were so draconian that going $1 over the monthly limit completely eliminated your benefit check for that month.
As a counterpoint, this discussion is from a 2011 technical manual written for Certified Public Accountants, so one would think it would be accurate. Using the same scenario as my OP (but the 2011 monthly earnings limit of $1,180), it suggests something quite different:
"If your monthly earnings after retirement are $2,200 over four months, that adds up to $8,800. The monthly earnings maximum for four months adds up to $4,720 ($1,180 x 4). That means that you are a total of $4,080 over the limit. The SSA would withhold one-half of that from your benefit ($1 for every $2 you earn)."
One could, of course, actually ask the folks at the SSA, but my experience has been that one would receive five different answers from five different SSA employees, all of which would be wrong.
Actually, you could receive far more than 5 different answers from only 5 different people, depending on the time of day, day of the week, pre/post holiday. I know because it has happened to me. And they will not put it in writing so you have no basis to make a claim/appeal.
Actually, you could receive far more than 5 different answers from only 5 different people, depending on the time of day, day of the week, pre/post holiday. I know because it has happened to me. And they will not put it in writing so you have no basis to make a claim/appeal.
I do sympathize with the SSA folks because all of the aspects of SS can be almost unbelievably complex, but this is a situation we see throughout government (and private industry, for that matter): Customer service positions, which logically should be staffed by absolutely the most highly qualified experts who are capable of providing correct answers to technical questions, are instead staffed by minimum-wage goofballs who barely speak English. I actually sent my question to the SSA and got back a very prompt reply that was utterly irrelevant to what I had asked; the "helpful" SSA guy just strung together a bunch of quotations from SSA publications that had absolutely nothing to do with what I had asked. It appeared to me that they must be under much more pressure to "answer questions promptly" than to "answer questions correctly."
You recapture any of the penalty for working when you reach full retirement age.
Of course, that sleight of hand makes it obvious that the government really wants to discourage you from retiring early.
If you will have significant income from working and the social security benefit is not absolutely essential, even if it is reduced by those earnings, it is better to wait until full retirement age to start collecting.
And, yes, just going over the monthly limit by a dollar in the first year you retire could mean no benefit that month.
You recapture any of the penalty for working when you reach full retirement age.
Of course, that sleight of hand makes it obvious that the government really wants to discourage you from retiring early.
If you will have significant income from working and the social security benefit is not absolutely essential, even if it is reduced by those earnings, it is better to wait until full retirement age to start collecting.
And, yes, just going over the monthly limit by a dollar in the first year you retire could mean no benefit that month.
My understanding is that you "actuarially" recapture it, meaning that you will if you live long enough. When one reads the Social Security POMS, which is the manual for SSA employees, one sees many sections where the SSA employee is told "Don't mention this to the applicant." In other words, let the applicant bring up this loophole if he's savvy enough to know about it. It appears that there is quite a bit of sleight-of-hand.
Your last statement is my question. Some sources suggest that this is the case ($1 over costs you the entire benefit check), but others (such as the CPA manual I quoted) say it isn't. I'd love to hear from someone who has actually experienced what happens.
It seems it would be safest not to exceed the limit.
I surfed a few more sites.
After you file your tax returns, they can come back and ask you to return any overpayments to you. If they underpaid you, they will pay it to you, also.
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No check if you exceed $1220 per month
