Advanced Underwriting Consultants

Question of the Day – February 14

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I have a client who is taking early retirement in 2012 at age 63.  The client intends to apply for Social Security retirement benefits later this year.  Will the early year earnings reduce his Social Security benefits?

Answer: No.

The Social Security Administration’s chart for 2012 indicates that a person can earn up to $14,640 in a year without having the early retirement benefit reduced.

If it is the first year of early retirement benefits, and if the benefits are started in a month other than January, the earnings test will apply on a monthly basis for the first year of benefits. For example, a retiree could begin receiving benefits in July after earning $30,000 during the first six months of the year, and nothing thereafter. Benefits would not be reduced, even though total earnings for the year are over the 2012 limit.

Retirement Earnings Test Exempt Amount (under full retirement age) One dollar in benefits will be withheld for every $2 in earnings above the limit.

Note: There is no annual earnings limit for those who continue to work after reaching their normal (66 in 2012) retirement age.  Persons who continue to work after normal retirement age will not suffer a social security benefit reduction, regardless of how much is earned.

$14,640 Per Year

($1,220 Per Month)

In the example, the taxpayer would need to earn $7,320 (6 months times $1,220/month) before benefits would be reduced.

While the taxpayer’s early year earning will not reduce benefits in the example, the existence of substantial taxable income might make up to 85% of social security benefits income taxable.

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