Social Security Earnings Limit
If you take social security benefits before full retirement age, and you earn income in excess of the annual earnings limit, your social security benefit will be reduced. (Keep in mind, investment income does not count toward the annual earnings limit; the only income that counts is income you earn by working.)
In 2009, the annual earnings limit is $14,160. That means you can earn up to $14,160 and your benefits will not be reduced. If you earn over $14,160 the amount of reduction you incur will depend on your age.
Income Earned Before The Year You Reach Full Retirement Age
If you are collecting social security benefits and earn more than the annual earnings limit, social security will take back $1 of social security for every $2 over the limit. Ouch! This is a serious reduction.
This reduction applies to any year before you reach full retirement age, but it only applies to income earned after you start collecting social security benefits. So if you work a partial year, the income you earn before the month you start collecting social security benefits does not count toward the annual earnings limit.
Income Earned During The Year You Reach Full Retirement Age
During the year you reach full retirement age, and up until the month you reach full retirement age, social security will deduct $1 for every $3 you earn that is over the annual earnings limit. During this year social security only counts earnings that you receive before the month you reach full retirement age.
Income Earned After You Reach Full Retirement Age
Once you reach full retirement age, you are no longer subject to the annual earnings limit; you can earn as much as you like without incurring a reduction in your social security benefits.
You social benefits may however still be subject to income taxes. Read Taxes on Social Security to see if your benefits will be taxable.
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