{"id":9604,"date":"2022-09-08T20:10:14","date_gmt":"2022-09-09T00:10:14","guid":{"rendered":"https:\/\/kerryhannon.com\/?p=9604"},"modified":"2022-09-08T20:14:16","modified_gmt":"2022-09-09T00:14:16","slug":"unretiring-you-might-face-the-social-security-earnings-test","status":"publish","type":"post","link":"https:\/\/kerryhannon.com\/?p=9604","title":{"rendered":"Unretiring? You might face the Social Security earnings test"},"content":{"rendered":"
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\u00a0Here\u2019s one to make you pull out your calculator or your hair.<\/span><\/div>\n<\/div>\n<\/div>\n<\/div>\n
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A growing number of retirees have stepped off the sidelines and headed back to work this year, but one thing that might surprise them is the impact that any income, even from part-time work, can have on their Social Security benefit.<\/p>\n

I hear this all the time from retired family members, friends, and readers.<\/p>\n

Roughly 1.5 million retirees have\u00a0unretired<\/em>\u00a0and reentered the U.S. labor market over the past year, Nick Bunker, the director of economic research at Indeed Hiring Lab, told Yahoo Money.<\/p>\n

\u201cThat\u2019s more than 3% of retired workers who have made the decision to return to work, a continuation of a trend that started in the spring of last year,\u201d he said.<\/p>\n

The impetus for many has been soaring inflation and the volatility of the stock market rattling retirement accounts.<\/p>\n

Read on Yahoo Money<\/a><\/strong><\/p>\n

Unretiring is good news in my book. I\u2019m a big fan of working as long as you can to build financial security to support a longer, healthier life span. And, of course, there are all the other good things that work in some fashion can provide like a social network, the psychological boost of feeling relevant and needed, and the mental engagement to use it before you lose it.<\/p>\n

But the problem is some of those former retirees who were pushed out of the workforce due to a layoff or accepted early retirement packages in the first year or so of the pandemic decided to tap into their\u00a0Social Security\u00a0<\/a>benefits for income. They were\u00a0eligible<\/a>\u00a0if they were age 62 or older and figured it made sense to turn it on. I get that.<\/p>\n

But that\u2019s where things get tricky. The sweet new paychecks might trigger the Social Security retirement\u00a0earnings test;<\/a>\u00a0a formula that withholds a portion of benefits if your wage income exceeds a set level.<\/p>\n

\u201cThe Social Security earnings test is problematic even without the pandemic, but it’s even more pronounced now,\u201d Martha Shedden, president of the\u00a0National Association of Registered Social Security Analysts<\/a>\u00a0(NARSSA), which has trained more than 3,000 advisors on how to help their clients make optimal Social Security decisions, told Yahoo Money. \u201cThere are quite a few people out there dealing with this because of what’s happened in the past almost three years.\u201d<\/p>\n

Take a breath.<\/p>\n

Here\u2019s how it works. The earnings test applies only to people who are collecting Social Security between 62, the earliest age of eligibility, and\u00a0their full retirement age<\/a>\u00a0\u2014 between 66 and 67, depending on the year you were born.<\/p>\n

On the face of it, you\u2019re allowed to claim Social Security retirement benefits while working. And the withheld benefits are not\u00a0lost\u00a0<\/em>\u2014 Social Security recalculates monthly benefits when you reach full retirement age to credit back the withheld benefits.<\/p>\n

But retirees caught in this situation are often baffled.<\/p>\n

For instance, there can be months between when wage income is reported to the Social Security Administration and when Social Security starts withholding from your check. If you\u2019re a contract worker, that sum might not be revealed until you file your taxes. As a result, you\u2019re overpaid by their calculations, and you have to pay back the benefits.<\/p>\n

\u201cThat\u2019s not a good situation to be in,\u201d Shedden said.<\/p>\n

In general, the way the earnings test works is if you\u2019re between age 62 and your full retirement age and earn over $19,600 this year (the limit is adjusted annually), and you’re collecting Social Security, the administration will withhold $1 for every $2 over that limit.<\/p>\n

For people hitting their full retirement age in 2022, the annual exempt amount is $51,960. This higher exempt amount applies only to earnings made in months prior to the month you hit your retirement age.<\/p>\n

\u201cThis is a hot topic,\u201d\u00a0Justin Smith<\/a>, a fee-only certified financial planner with Savant Wealth Management in Phoenix, Arizona, told Yahoo Money. \u201cLots of my clients are asking me about Social Security, and how it plays into their desire to keep working longer, or start a business, or consulting practice. They\u2019re blurring the lines, which makes when to take Social Security a lot more complex.\u201d<\/p>\n

The good news is that the earnings test goes away at full retirement age. But it might make sense to put the brakes on taking the benefit until age 70.<\/p>\n

\u201cIf your world changed, and you\u2019re back at work and no longer need that income from Social Security, you can voluntarily suspend it and hit the pause button between full retirement age and 70,\u201d Smith said. \u201cYou get to earn those\u00a0delayed retirement credits<\/a>, which is roughly an 8% per year annual increase.\u201d The benefit increase stops when you reach age 70.<\/p>\n