Advanced Underwriting Consultants

Question of the Day – March 23

Ask the Experts!

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

Question: I have a client who just turned 64 who will retire later this year, and begin collecting Social Security retirement benefits.  Will her income early in the year reduce her benefits later in the year?

Answer: No.  While earned income has the potential to reduce Social Security retirement benefits for early retirees (those younger than 66 under current rules), only income earned in months after Social Security benefits have started is counted.

Here’s an excerpt from the Social Security 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.

In the example above, the client’s early year income will likely make up to 85% of the Social Security benefit income taxable.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.