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Money July 2012

Dollar Sense

Going Back to Work? How Much Social Security $$ Will You Lose?

By Teresa Ambord

The Bureau of Labor Statistics reports that since 1990, the number of seniors returning to the workforce has nearly doubled. If going back to work appeals to you or has become a necessity, you need to know how a paycheck will impact your benefits.

It won't surprise you to learn that more and more retirees are returning to the workforce to supplement their incomes. Others want to work because they are bored or they miss the social side of work, or they want to try a different field of work. The Bureau of Labor Statistics reports that since 1990, the number of seniors returning to the workforce has nearly doubled. If going back to work appeals to you or has become a necessity, you need to know how a paycheck will impact your benefits.

The answer depends on how old you are compared to your full retirement age, and of course, how much you earn. There is an annual limit beyond which you will begin to lose some benefits, though the loss is not dollar for dollar. Most years, that limit is adjusted slightly upward for inflation. Assuming you have will not reach your full retirement age in 2012, the most you can earn without losing benefits is $14,640. For any amount beyond that, you will lose $1 for every $2 you earn. Note: special rules apply if this is the first year you are receiving benefits.

Suppose you are 63. You retired last and year and starting collecting Social Security. Now your son has asked you to do some part-time bookkeeping for him, for $1,000 per month. You are well under the annual limit of $14,640, therefore you should not lose a single dollar in benefits.

Suppose the same facts, except you are offered $1,500 a month, which equals $18,000 for the year. That surpasses the annual limit by $3,360, and you will forfeit $1 for every $2 of the excess. In this case, you would lose $1,680 ($3,360/2 = $1,680).

You can check your specific scenario online with this calculator, or by opening your browser and typing in ", retirement earnings test calculator."


The Year You Reach Full Retirement Age

Once you reach full retirement age, there is no limit to the amount of income you can earn and still draw your full Social Security check. But what happens in the months before that in the same year?

Let's assume you will reach your full retirement age of 66 in June 2012. In January through May, new rules apply, allowing you to earn more (assuming this is not the first year you will receive benefits).

During these months, for every $3 you earn, you will lose $1 in benefits. That's good. But the news gets better. In this year, in the months prior to your 66th birthday, the annual limit also rises considerably, to $38,880.

Suppose you earn a salary of $41,880 by the end of May. That's $3,000 over your limit. You will lose $1 for every excess $3, so this scenario, your benefits would be reduced by only $1,000. ($3,000/3 =$1,000).

Assuming you continue to work after your birthday on which you reach full retirement age, you are not subject to any limit.


When Does the Reduction in Benefits Occur?

Here is the answer directly from the Social Security Web site.

We withhold benefits starting at the beginning of the year. We do not pay partial monthly benefits based on estimated earnings. Next year, when we know how much you actually earned in 2012, we will calculate how much your benefits should have been reduced. We will then pay you any excess benefits we may have withheld or let you know if we did not withhold enough.


If You Do Not Know Your Full Retirement Age

Find out by visiting and typing in "full retirement age." For most people who are approaching retirement age but have not yet reached it, "full retirement age" is 66 (for those born in 1943-1954), or 67 for those born in or after 1960. For those born from 1955 to 1959, add 2 months for each year. For example, a person born is 1956 reaches full retirement at age 66 and 4 months.


Worried About Finding Work?

If you are hoping to return to the workforce, it's true that jobs are scarce. But don't assume your age is an automatic strike against you. Smart employers understand that seniors have qualities that most younger generations do not. They have perspective, which may give them the ability to predict and analyze outcomes. Seniors have fewer family obligations that interfere with work. And though they may be less tech-savvy that their youngers, they also tend to be more punctual, less likely to clock out early and less inclined to call in sick on Monday or Friday just to lengthen the weekend, or to recover from too many margaritas.

Here's a suggestion for creating your own job that may work for you. One insurance agent employs a local senior woman to call people whose policy payments are about to come due. It's not a collection call, just a heads up, a friendly reminder, so that their policies don't accidentally lapse. In the same town, a dentist employs an older woman who calls patients to remind them, two days ahead of time when they have appointments. That results in fewer missed or cancelled appointments and lets the dentist manage his schedule better. Could a machine do the same job? Certainly, but the cold efficiency of a machine cannot replace the friendly voice, patience, and flexibility of a real person. Ask your doctor, dentist, insurance agent, or other professional if he or she would be interested in employing you a few hours a week to be that friendly voice.


If This is the First Year You Collected Benefits

Here is a rundown of the rules from the Social Security Administration website.

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 2012, a person under full retirement age for the entire year is considered retired if monthly earnings are $1,220 or less. For example, John Smith retires at age 62 on October 30, 2012. 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 2012 annual limit ($14,640), he will receive a Social Security payment for November and December. This is because his earnings in those months are $1,220 or less, the monthly limit for people younger than full retirement age. If Mr. Smith earns more than $1,220 in either of those months (November or December), he will not receive a benefit for that month. Beginning in 2013, 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.



Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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