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Maximize Social Security Benefits When You Retire

Posted on Tue, Jul 01, 2014
 

Get the most from Social Security. Younger retirees face a harsh penalty for working part-time. For every $2 earned over $15,480 in 2014, you lose $1 in Social Security benefits (up from $15,120 in 2013). 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 $41,400 in 2014 if you reach full retirement age (up from $40,080 in 2013).

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 2014 allowed amount of $15,480 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 adviser can provide more information.

 

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Tags: EHTC Article, Benefits, Tax Planning, Retirement, Social Security, Articles