Understanding Social Security Earnings Test

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn how the Social Security earnings test impacts your benefits. Make informed decisions for your retirement income plan. Explore more at SafeMoney.com. Choosing when to take your Social Security benefits — whether that moment is before, at, or beyond your Full Retirement Age (or Normal Retirement Age) — could be one of the most important decisions you will make for your retirement income plan. Why is knowing your Full Retirement Age (FRA) so critical? Claiming your Social Security benefits prior to reaching your FRA results in a reduction of your benefit, a reduction that lasts for your entire life. Since Social Security is likely to be the largest “income asset” for many people, understanding what could reduce that payout, and potentially how to avoid that reduction, is paramount. It’s not just that. If you are working and take Social Security benefits before attaining your Full Retirement Age, the Social Security Administration will also reduce your benefits payments should your earnings exceed certain limits. This is called the “Earnings Test” by the SSA and financial professionals. According to Transamerica Center for Retirement Studies , 53% of workers plan to work past 65, and 56% plan to work after they retire. Given that lots of Americans have working plans for their retirement future, how could the Earnings Test affect their benefits payments? For one, it isn’t clear to many people exactly what earnings apply toward the Earnings Test — and therefore what could affect their benefits payouts. Full Retirement Age — a Lynchpin in the Earnings Test Remember how your Full Retirement Age can affect your Social Security checks? Well, here is a quick rundown of what it entails really fast. As a reminder, the Social Security Administration determines your FRA based on the year in which you were born. If you were born after 1943, your FRA is somewhere between your 66 th and 67 th birthday. This chart can help you pinpoint when your Full Retirement Age applies. Let’s say you were born after 1961, giving you a FRA of 67. If you start your retirement benefits at age 62, your monthly benefit amount is reduced by about 30 percent…forever. This data from the Social Security Administration shows how your benefits will be reduced when you start