Social Security - Earnings Cap Penalty

Anyone who collects Social Security benefits before full retirement age — including retired workers, their spouses, divorced spouses, survivors, and minor dependent children — is subject to an earnings limitation that may reduce or wipe out their benefits. The earnings cap restrictions apply only to wages or salary from a job, not other forms of income, such as investments, pensions, government benefits, or rental property.

 In 2023, if you elect to receive benefits but are younger than full retirement age for the entire year, you lose $1 in Social Security benefits for every $2 you earn over $19,560. The earnings cap is indexed to inflation and increases in any year with a cost-of-living (COLA) adjustment. Only your wages count toward Social Security's earnings limits if you work for someone else. If you're self-employed, only your net earnings from self-employment count toward the earnings cap restrictions.

Let's say you are 64 (elected to receive before FRA) and collect $1,800 per month in Social Security benefits for $21,600 per year and continue to work or decide to return to work. If you earn $40,000 from your job, that's $18,760 over the earnings limit ($40,000 - $21,240); therefore, you would forfeit $9,380 in benefits ($18,760/2). The Social Security Administration will withhold your monthly benefits until the $9,380 is "paid back."

In the year you reach full retirement age, the rules get more generous. In the months leading up to your 67th birthday (born after 1959), you can earn up to $56,520 for the year in 2023— without sacrificing any Social Security benefits. If you earn more than that, you'll lose $1 in benefits for every $3 over the earnings cap. Once you reach full retirement age, however, the earnings cap disappears. Benefits lost to the earnings cap are not gone forever; they are merely deferred. 

At Carr Wealth Management, LLC, anyone who sets goals for themselves qualifies to be a client. Whether you need help creating a comprehensive financial plan or need advice on individual matters, we can help.  Choosing the best strategy for maximizing social security benefits is essential to planning for your future. Please contact us by email or phone us at (925) 484-1671 to schedule a no-charge consultation or if you have a question about Social Security Benefits. 

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