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By Christine Benz | 04-11-2013 01:00 PM

Know These Thresholds of Social Security Benefits

Andrew Salata of the Social Security Administration offers tips for how retirees can manage age and income limits to optimize their Social Security payouts.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Many people are working past traditional retirement age, but that has implications for Social Security benefits. Joining me to discuss that topic is Andrew Salata. He is a public affairs specialist with the Social Security Administration.

Andrew, thank you so much for being here.

Andrew Salata: Thank you for having the chance to talk with you about some of the information about working after retirement and how it affects people. It's something we're seeing more and more. So it is timely.

Benz: A lot of people really have no choice but to continue working past that traditional retirement age. Let's get the good news right out of the way, which is that if you are full retirement age, you can continue to earn Social Security benefits, and those benefits won't be affected no matter what you earn from your job, correct?

Salata: Correct. If you're at your full retirement age--which for those who we are seeing now born between 1943 in 1954 is 66--if you're already 66 and you continue working, those work wages or self-employment wages do not affect the Social Security benefits.

It's a little bit different if you're turning 66 this year. For the months prior to age 66, some individuals take retirement at the beginning of the year, so if you're turning 66 later in the year, you can earn up to $40,080 for the months prior to your birthday month. So, an example would be if you turn 66 in June, as long as your earnings are under $40,080 by May 31…

Benz: So, in those first five months of the year?

Salata: Yes.

Benz: OK. So that's pretty generous, but your benefits do start to get cut back if you are prior to that full retirement age and you're still earning a paycheck. Let's talk about the thresholds that kick in and in turn what happens to your Social Security benefits.

Salata: Sure, because the earliest you can still file even though our retirement ages have changed is 62 for early retirement. But if you do file early, so prior to when you're turning 66, the limit is lower, it's $15,120 for the calendar year. And again, we look at the calendar-year amounts.

So, even if you do take your retirement benefits later in the year, we still have to first take a look at the calendar-year amount, except for a special rule. The first year you retire in case you are waiting for a birthday before you retire, we will look at a monthly amount. The $15,120 comes out to be $1,260 a month over 12 months. So, as long as your earnings stay at that level or below, so if you reduce your hours or just get a part-time job, we'll disregard the whole calendar-year amount as long as each month that you're receiving benefits is under $1,260.

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