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How working can boost Social Security payout

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Although the Social Security Administration withholds some income if a person works while receiving benefits before they reach full retirement age, that can ultimately result in higher benefit checks.

For those born Jan. 2, 1943, through Jan. 1, 1955, the full retirement age for retirement insurance benefits is 66. Those who work and are at full retirement age or older may keep all their benefits, no matter how much they earn.

But for those younger than full retirement age during all of 2016, the government must deduct $1 from their benefits for each $2 they earn above $15,720. If they reach full retirement age during 2016, the government must deduct $1 from their benefits for each $3 they earn above $41,880 until the month that they reach full retirement age.

It is important to understand that this isn’t a tax, says Catherine Seeber, a CFP and partner and senior adviser at Wescott Financial Advisory Group in Philadelphia.

“In fact, it can be helpful,” she says.

Social Security would adjust the reduction on benefits for each month during which an individual didn’t receive a check due to the government’s earnings test, Seeber says.

For example, if a person received benefits for the entire year that they were 62 but then worked and didn’t receive any further benefits until 66, the government would adjust the benefit upwards.
They would treat it as if the person had originally elected benefits just 12 months early because they only received 12 months of early benefits, which would be the equivalent of starting at 65 instead 62. Accordingly, the individual’s monthly benefit would be adjusted upwards, plus any cost of living adjustments that had accrued.

“You would be surprised at the number of beneficiaries who elect to receive Social Security between age 62 and full retirement age,” Seeber says.

“Advisers are most likely going to run into clients who regret this decision or simply had a change of plans,” she says. “Helping them navigate the different options for making a change is a great way to add value and make sure your clients are making the best decision for their specific situation.”

It is important to clarify that in the year that a person reaches full retirement age, the earnings limit of $44,880 for 2017 only applies during the months before they reach that threshold, says Kevin Meehan, a CFP and a regional president of Wealth Enhancement Group in Itaska, Illinois.

“In other words, the earlier in the calendar year you’re born, the less you’ll have to worry about surpassing the earnings limit,” he says.

This story is part of a 30-30 series on Social Security.

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