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How Does the Social Security Earnings Limit Work?

Working While Receiving Social Security May Trigger the Earnings Limit

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If you collect benefits early, and continue working, the earnings limit will apply to you. Here's how it works.

Jim McGuire/Photolibrary/Getty Images

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 earned income - the income you earn by working.)

In 2014, the annual earnings limit is $15,480. That means you can earn up to $15,480 and your benefits will not be reduced. If you earn over $15,480 the amount of reduction you incur will depend on your age. (View current and past year's earnings limits).

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.

Note: sometimes Social Security website pages use the term "normal retirement age". It means the same thing as full retirement age.

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, but a different earnings limit applies the year you reach full retirement age.

In 2014, you can earn up to $41,400 during the year you reach full retirement age. 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.

Best Way to Avoid the Earnings Limit

The best way to avoid the earnings limit is to wait until you reach full retirement age to begin your benefits if you are able to do so. Understandably, some people have no choice and must start benefits because they are laid off and they have no other income or assets.

Other people, however, do have a choice: perhaps they could use some of their savings or retirement money to tide them over until they reach full retirement age. This may be a better option then starting Social Security early.

If you started Social Security recently and wish you hadn't, you can withdraw your application within 12 months of starting benefits. Learn more in How to Stop Social Security.

What Counts As Earnings?

Unemployment income does not count as earnings toward the earnings test above. If you are earning wages, income counts when it is earned, not when it is paid. For additional details on what counts as earnings see How Work Affects You Benefits section of the Social Security website.

Back to 5 Key Things To Know About Social Security Retirement Benefits

Dana Anspach, CFP®, is one of only a handful of people to hold the Retirement Management Analyst designation. She has been About.com's MoneyOver55 Expert since 2008 and is the founder of Sensible Money, LLC. You can learn more about Dana's work in her bio.

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