Maximize Social Security Benefits When You Retire

Posted on Wednesday, February 21, 2018

Get the most from Social Security. Younger retirees face a harsh penalty for working part-time. For every $2 earned over $17,040 in 2018 (up from $16,920 in 2017), you lose $1 in Social Security benefits. In the year you reach full retirement age, a higher earnings threshold applies. Your benefits will be reduced by $1 for every $3 of earnings only when earnings exceed $45,360 in 2018 if you reach full retirement age (up from $44,880 for 2017).

Road to Retirement

How long before you can collect full benefits? The SSA has prepared a chart to tell you when you reach full retirement age ... provided, of course, nothing changes:

Year of Birth

Retirement Age to Receive Full Benefits

1937 or earlier

65

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

After you reach full retirement age, you can earn unlimited amounts and still qualify for full Social Security benefits. (See the right-hand chart to determine what "full retirement age" means for you.)

However, that's only earned income. You can have unlimited unearned income from sources like retirement plans, pensions, annuities, interest, dividends and capital gains without losing any Social Security benefits.

This "Social Security Earnings Test" only applies to people below the normal retirement age.

With some advance planning, you might be able to reduce earned income and make up the shortfall with unearned income with a deferred compensation plan. That is, you receive money that you earn one year in a later year, perhaps in retirement.

For income tax purposes, taxes are due when money is received. For Social Security purposes, though, deferred compensation is counted when it's earned -- not when it's received. So any money you receive from a deferred compensation plan while you're between age 62 and your full retirement age doesn't count against Social Security retirement benefits. In other words, you can defer compensation from ages 55 to 61 and receive that money while you're between 62 and full retirement age.

To do this, the details of your deferred compensation plan should be recorded in the corporate minutes for your company if you're an owner or part owner. You should also include the appropriate reasons. For example, "the company needs cash now, for expansion purposes, so current compensation is being deferred."

Then, when you decide to semi-retire, you can work just enough to earn the allowable amount for that year. (The 2018 allowed amount of $17,040 will generally increase annually.) This way, you receive full benefits from Social Security.

In addition to Social Security and deferred compensation, your income can be supplemented by retirement plan payouts and perhaps the sale of company stock shares to your company. You may also have an expense account that can be used as a part-time employee to help offset expenses.

All of these methods help preserve your Social Security benefits and retirement dollars. Your tax advisor can provide more information.

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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