Q: I originally retired when I was 62 in 2006. I got a couple of Social Security checks, but then I returned to work full time and stopped my benefits. Now I'm planning to retire for good at age 65 in July 2009. How do the earnings penalty rules affect me? Can I restart my Social Security in July? Or will I have to wait until January 2010 to get my Social Security benefits?
A: (Note to my readers: I'm apologizing right upfront for this column. It's a messy subject and involves a lot of boring math. But it's an important topic that always generates lots of questions, so I have to occasionally delve into the quagmire that is the Social Security "earnings penalty.")
The earnings penalty rules are complicated. Because you didn't tell me all of the specifics I need to know, like how much money you expect to make this year and how much your Social Security benefits will be, I'll have to answer in a general way. So my bottom line message to you is to find someone at your local Social Security office who really knows this stuff and go over your options with him or her. If you're not comfortable with the first person you talk to, ask to speak to a supervisor or manager.
But here is some information that will help prepare you for that interview.
A key phrase you'll need to understand is "the first year of retirement rule."
Normally, the Social Security Administration counts your earnings for a full year. So if you do retire in July, whatever you make up to that point will count toward the earnings limit for all of 2009, even though you're retiring in July.
For example, let's say you make $30,000 in 2009 before you retire and let's further say your Social Security benefit is $2,000 per month. The earnings limit for 2009 is $14,160. So your earnings would be $15,840 over the limit. And the law says that one-half of that, or $7,920, must be deducted from Social Security benefits you're due between July and December 2009. That means the Social Security Administration would have to hold back the first three benefit checks you'd be due in 2009, and all but $80 of your fourth check. So, because of your earnings, you would receive only two full Social Security checks this year: the November and December benefit payments.
The "first year of retirement rule" is normally designed to help people like you. It says that in the first year you start getting Social Security checks, if you make more than the yearly limit, you can still get your full Social Security check for any month you are under a monthly earnings limit. (That limit is $1,180 in 2009.) In other words, because you're not working from July through December (i.e., not making more than $1,180 per month), you would normally be due all your benefits for July through December.
BUT, you already used up your "first year of retirement" in 2006 when you first started your Social Security.
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