Through hard work and careful planning, some lucky people are able to retire earlier than planned. You might expect to claim your Social Security benefits, take distributions from your retirement account, and feel quite content with the streams of income that you have established for yourself. You might even expect to work part time at a fun or interesting job, to add a bit to your monthly income.
Occasionally, though, early retirees receive an unpleasant surprise when they go this route. They knew that claiming their Social Security benefits earlier than planned will result in a permanent reduction in those benefits, but this feels acceptable in exchange for an early retirement. What they didn’t realize was that those benefits can be reduced even further, due to other forms of income they are earning.
For those who retire before their “full retirement age”, part of their monthly benefits check can be withheld once you earn more than a certain threshold each year. Currently, that threshold is $16,920, and one dollar of benefits can be withheld for every two dollars earned above that limit.
Pension payments, interest from investment accounts, and other types of retirement income are not counted toward this earnings limit. So, we’re talking about money that you earn through a part-time job or second career. This rule might also affect business owners.
You also won’t lose that money forever. After you reach your full retirement age (65 to 67, depending when you were born), Social Security will recalculate your benefits. They will give you credit for all the funds previously withheld.
In other words, it’s not all bad news. But Social Security procedures are important to note if you’re considering an early retirement. In some cases, your benefits might not be what you expected, and we don’t want you to face any unpleasant surprises. So, schedule an appointment with us before you retire, and we can review your situation and help you anticipate these types of issues.