One of the most frequent questions for those on the edge of retirement is, "How much can I make and still collect my full Social Security?" 

There's a simple answer, but often it misses some nuance that will allow you to develop better claiming strategies for your clients. Taking a closer look at both the annual earnings test and the lesser-known monthly earning tests can sometimes present exciting planning opportunities.


Annual Earnings Test

The annual earnings test has two tiers:

  1. A client can earn up to $19,560 every year until the calendar year that they reach full retirement age. This figure is determined on an annual basis and increases every year. For every $2 above that amount, $1 of Social Security benefit is withheld.
  2. A second tier for the annual earnings test rule only applies to the year the client turns full retirement age. If the client reaches full retirement age in 2022, they can earn up to $51,960 before any earnings penalty. Above the limit, $1 for every $3 of Social Security benefits is withheld.

Monthly Earnings Test

The limit is 1/12 of the annual threshold for the monthly earnings test. Each month that the client's earnings do not exceed the threshold, they can collect a full Social Security benefit check. Typically, the monthly earnings test is used for clients in their retirement year. For instance, maybe a teacher is retiring in June after the end of the school year. They are 64-years-old and significantly younger than full retirement age, but they will stop working this year. Up until June, they made more than 1/12 of $19,560. So for the months up until June, they are subject to the earnings penalty. They would not be eligible to collect a Social Security benefit for those months, but beginning in June, because they have zero earnings, they can collect a full Social Security benefit under the monthly earnings test. Clients who are independent contractors and have a bunch of earnings in one month followed by a few months with no earnings can also often benefit from the monthly earnings test. It's important to note that the monthly earnings test can only be used for one year, and that's why it's typically used for the year of retirement. 

Planning Strategies Around the Earnings Test

For couples who have some earnings over the limit but not so much that their benefit is eliminated, advisors may want to suggest the lower wage earner in a couple claim early. The lower earner's benefit will only last as long as both members of the household are alive. Once they reach full retirement age, their benefit will be adjusted upwards by any month they did not receive a Social Security check due to the earnings test. The Social Security retirement earnings test is not a tax. Social Security benefits are recalculated when the client reaches full retirement age. For example, if 12 months of checks were missed due to the earnings test, the benefit will be recalculated at full retirement age, and it would be treated as though they had elected one year later. Actuarily, it ends up being the same. There are several layers of earnings test rules and various planning strategies for advisors to be mindful of.

Social Security Timing®

The annual earnings test is included in our Social Security Timing software. You can help clients determine the optimal time to claim benefits, even if they are still working. Social Security Timing also accounts for survivor benefits and benefit cuts and suggests common alternative claiming strategies. You can try the software for free for 10 days. No credit card is required. 

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