Download the following support materials:

Field Guide to Social Security
Social Security Workbook

Why It Matters:
  • Clients may not know working while collecting Social Security (at some ages) comes with a cost.
  • But they may later recoup some of what they gave up.
  • Or that working after full retirement age (FRA) does not incur a penalty.

You may have clients eager to claim Social Security benefits as soon as they are eligible at age 62.

But do they understand the complicated dance that comes with continuing to work after claiming benefits before full retirement age (FRA)? It’s complicated and it involves giving up some benefits while working, but getting some back later. For a financial professional, it can even be a little hard to explain in simple terms.

Here’s the deal. Social Security recipients are allowed to work while claiming benefits. But if they are under FRA, they can only earn an annual set amount ($16,920 in 2017, for most) before the agency starts clawing some of that back at a rate of $1 for every $2 earned (earnings don’t include income from pensions, dividends, interest, capital gains, or other government benefits).

(There’s a different formula and earnings limit for workers who earned money during the year in which they reach FRA. We’ll get to that later.)

Maybe the first question is to ask your client is “why are you claiming benefits early if you plan to keep working?” That’s something the client should really think about, keeping in mind that their monthly benefit will be reduced for every month they receive benefits before FRA. That doesn’t mean they can’t or shouldn’t claim early, but it should encourage them to make a purposeful, mindful decision knowing all the facts.

OK, assuming your client has decided to claim before FRA and still wants to keep working, here’s the drill.

An example

Social Security’s example assumes a worker filed for benefits at 62, the earliest possible age, but continued working. In the example, the hypothetical benefit amount should be $600 a month ($7,200 a year) but the recipient earned $22,000 during the year, which is $5,080 more than today’s $16,920 threshold.

In response, the Social Security Administration will take back $1 for every $2 over the threshold, $2,540 in the example ($5,080 ÷ 2 = $2,540).

The process starts when the agency asks recipients how much they expect to earn each year.

Once Social Security has an estimate on how much the worker will make, it starts withholding monthly checks until it figures it has recaptured the correct amount. Any excess is returned in the first check of the next year.

The good part

Here’s the part that’s surprisingly fair. When the worker reaches FRA, the agency looks back. If it sees some checks were withheld because of excess earnings while claiming benefits, the agency recalculates the claiming date, adding a month to the claiming date for each month’s worth of withheld benefits. And that could mean a higher monthly benefit check going forward.

Social Security’s example continued

”Let’s say you claim retirement benefits upon turning 62 in 2017, and your payment is $964 per month. Then, you return to work and have 12 months of benefits withheld. We would recalculate your benefit at your full retirement age of 66 and 2 months and pay you $1,029 per month (in today’s dollars). Or, maybe you earn so much between the ages of 62 and 66 and 2 months that all benefits in those years are withheld. In that case, we would pay you $1,300 a month starting at age 66 and 2 months.”

In other words: your client takes two steps forward, gets dragged back one, then get pushed ahead later. It’s that simple. (This is why your clients need your help.)

After FRA?

After reaching FRA, Social Security recipients can earn as much as they want without penalty.

And because the agency understands workers may earn a substantial part of their salary during the year they reach full FRA (say someone who reaches an FRA of 66 in October and then retires) the agency allows workers to earn up to $44,880 without penalty in the year they reach FRA, and for that one year, the clawback is reduced to $1 for every $3 earned. For someone who plans to continue working full time after FRA, maybe there’s no need for the added income from Social Security.

Things to Consider:
  • Clients are welcome to continue working while they receive benefits but there are some considerations. If they choose to receive benefits before their FRA they will encounter some earned income limits and exceeding these limits will result in a reduction of benefits.
  • Remind your clients to plan ahead for any possible benefit reductions
  • Help inform your clients on what age might be best for them to start claiming those Social Security benefits.
  • Every clients situation is different. They should consult with consult with a qualified professional to answer any questions based on their situation.