Social Security provides benefits to around 1 in 5 citizens but there are some little known rules that can impact their benefits. This often comes up as we speak with seniors as they plan to downsize and relocate. These rules need to be figured into financial planning.
An article from The Motley Fool looks at two Social Security rules that are particularly relevant today as many seniors are still in or returning to the workforce.
1. Working After Claiming Social Security Early: A Potential Reduction in Benefits: The first is for those who collect Social Security retirement benefits before reaching their full retirement age (FRA). Shockingly, between 25% and 50% of pre-retirees are unaware that continuing to work after claiming Social Security early can lead to a benefit reduction.
>If you receive Social Security retirement benefits before your FRA, your benefits will be reduced by $1 for every $2 you earn above an annual limit. For 2024, this limit is set at $22,320. The rules change in the year you reach your FRA, with a higher threshold of $59,520 and a reduction of $1 for every $3 earned above this limit.
2. Temporary Reduction: A Social Security Advisory Board report finds that only 30% to 40% of those informed about the reduction understand its temporary nature. The Social Security Administration rules mean benefits will no longer be reduced starting from the month you reach FRA and that your benefit amount will be recalculated to provide credit for any amount previously withheld.
So many retirees these days are engaging in partial retirement or they move in and out of the workforce before fully retiring and that trend is expected to continue. It’s all the more reason to be aware of the potential benefit reduction and the temporary nature of the reduction. A retirement strategy taking these rules into account will help ensure you make the most of your benefits.
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