Thursday, April 9, 2009

How Much Money Can You Make After You Retire?

How Much Money Can You Make After You Retire Before Your Benefits Are Reduced? 

Financial and Retirement Planning Information - 
for Beginners

When a person retires, we think of them as no longer working. In today's climate, however, many people continue to work, or return to work after they "retire". They may be doing the same thing they did before they retired, or they may be doing something entirely new.

So... if a person retired, why on earth would they go back or continue to work? There are many reasons, but the main ones are: lack of money and boredom.

Many people thought it would be so nice when they no longer had to work, but once that became a reality, they found it wasn't so nice after all. What can you do around the house for the 9 to 10 hours a day that you used to be gone? You can only nap so much. You can only visit your friends so often.

You can only go shopping so much. Well, you could do some of those projects that you said you would do "some day", but eventually you will run out of things to do. Now what? Go back to work! You can pick up some extra money and fill those long hours at the same time.

You can go back to your former line of work, or you can find something new to do. Maybe your job was welding, but you always liked working in the dirt. Maybe you could go to work as a gardener or a landscaper.

You might like to teach and could hold some classes in your former field. Who would know more about that job than you?

Too many people are forced to go back to work, whether they want to or not because of finances. Maybe you had all of your retirement funds tied up in the stock market. Perhaps you just didn't save enough and can't afford to live on social security alone. Maybe you have enough saved to live on, but you have a lot of outstanding debts that you have to spend your savings on, or you have a lot of unexpected medical bills, or your wife ran off with the guy next door and took all of your money with them.

Whatever the reason, you now find yourself in a position where you have to work. So how much are you allowed to make while drawing social security before you are penalized?


The Social Security Administration (SSA) uses the formulas below, depending on your age, to determine how much your benefit must be reduced:

If you are under: normal (or full --age 66 for people born in 1943 through 1954) retirement age (FRA) when you start getting your Social Security payments, $1 in benefits will be deducted for each $2 you earn above the annual limit. For 2012 that limit is $14,640. Remember, the earliest age that you can receive Social Security retirement benefits remains 62 even though the FRA is rising, but your benefits will be greatly reduced at ages 62 to FRA.

In the year you reach your FRA: $1 in benefits will be deducted for each $3 you earn above a different limit, but only counting earnings before the month you reach FRA. For 2012, this limit is $38,880.

Starting with the month you reach FRA:, you will get your benefits with NO limit on your earnings.

If a child or spouse on your record works while receiving benefits, the same earnings limits apply to him or her as apply to you. If your child or spouse is eligible for benefits this year and is also working, you can use our earnings test calculator to see how those earnings would affect the child's benefit payments. (Your child's or spouse's earnings affect only his or her own benefits. They do not affect your benefits or those of any other beneficiaries on your record.)

If you retire in the middle of a year:

When entitlement to benefits begins or ends during the year, many people work in months before or after entitlement. The SSA uses a monthly test to consider these earnings. The monthly earnings test provides that a person can receive full benefits for any month in which he or she does not earn wages over one-twelfth of the annual exempt amount and does not perform substantial services in self-employment.

The monthly amount for 2009 is $1,180. We pay benefits in these months regardless of the amount by which the person's earnings exceed the annual exempt amount. We use the monthly earnings test in the first year that a person does not work over the monthly limit in at least 1 month. We also use the monthly test for the year benefits end for children (including students) or parents who get benefits because they are caring for a young or disabled child.

Note: There are different rules for people receiving Social Security Disability:

The Social Security Administration has special rules called "work incentives" that help you keep your cash benefits and Medicare while you test your ability to work. For example, there is a trial work period during which you can receive full benefits regardless of how much you earn, as long as you report your work activity and continue to have a disabling impairment.

The trial work period continues until you accumulate nine months (not necessarily consecutive) in which you perform what the Social Security Administration calls "services" within a rolling 60-month period. They consider your work to be "services" if you earn more than $720 a month in 2011,  or if you are self-employed, you earn more than $720 (after expenses) or work more than 80 hours in your own business.

After the trial work period ends, your benefits will stop for months your earnings are at a level the SSA considers "substantial," currently $1,000in 2011.  Different amounts apply to people who are disabled because of blindness. The monthly substantial amount for statutorily blind individuals for 2011 is $1,640; for 2008 this amount was $1,570.

For an additional 36 months after completing the trial work period, the Social Security Administration can start your benefits again if your earnings fall below the "substantial" level and you continue to have a disabling impairment.