Social Security benefits are an important part of life after retirement. It is crucial to understand the relationship between these benefits and your income, as you prepare for what lies ahead. Retirement details should not be intimidating. As long as you prepare ahead of time, you can enjoy your benefits, while at the same time earning some extra income. In order to do this, you need to know the basics of how your benefits and income work together.
Age and Income Affect Social Security
Your income directly influences your social security benefits. The two major factors here are your age and your income level. First, your age determines your annual income limit. If you are at early retirement age, then your annual earnings limit will be $15,480. However, if you’ll reach full retirement age during the calendar year, your income limit will be $41,400. There is no annual income limit after you reach full retirement age.
Larger Incomes Decrease Benefits
Second, how much you earn determines how much your benefits will be. Again, this depends on age. If you are at early retirement age, you will see your benefits deducted at a rate of $1 for every $2 you earn above $15,480. For example, if your full benefit from Social Security is $12,000 annually ($1,000 per month) and you plan on earning $20,000 that year, then your benefits will be reduced by $2,060 for that year. On the other hand, if you will reach full retirement age during the calendar year, and your full benefit from Social Security is $12,000 annually ($1,000 per month) and you plan on earning $45,000 that year, then you will have your benefits reduced by $1,200 for that year.
Early Retirement Causes Benefit Delays
There are a couple of final details you should be aware concerning Social Security benefits and your income. You should know that full retirement age is currently 66 years old, and this will gradually go up to 67 years old by 2027. Also, should you earn more than your annual income limit for a particular year then the income will be deducted from your benefits at the beginning of the calendar year. In this situation, you will not receive your first three months of benefits. Starting in April, you will receive your normal monthly benefits. The following Janurary, you will receive a check for the difference between the benefits you did not receive for three months.
Your income does have an effect on your Social Security benefits, and therefore it’s important to understand exactly how you could be penalized for a large income. Before you sign up for Social Security benefits, make sure to calculate your income and potential benefits. This way you will have a comprehensive picture of your finances after retirement.