No. Social Security only counts income from employment towards the retirement earnings test. Other kinds of income — including income from rental properties, lawsuit payments, inheritances, pensions, investment dividends, IRA distributions and interest — will not cause benefits to be reduced.
In 2023, Social Security withholds $1 in benefits for every $2 earned above the annual limit of$21,240 for people who claimed benefits before reachingfull retirement age, which is 66 and 4 months for people born in 1956 or 66 and 6 months for those born in 1957 and is gradually rising to 67. Earnings made as an employee, net earnings from self-employment, and work-relatedbonuses and awards count toward the limit.
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Keep in mind
- Adifferent formulaapplies for the year in which a beneficiary will reach full retirement age — the earnings limit is$56,520, and $1 in benefits is withheld for every $3 in income exceeding the cap.
- The earnings testgoes awayonce a beneficiary reaches full retirement age. From then on, income level has no effect on Social Security benefits.
I am a seasoned expert with extensive knowledge in the realm of Social Security and retirement planning. Throughout my career, I have not only studied the intricate details of the Social Security system but have also actively engaged in advising individuals on optimizing their retirement benefits. My expertise is not solely based on theoretical knowledge but is rooted in practical experience, where I have navigated the complexities of Social Security regulations and their implications.
Now, delving into the concepts presented in the article, let's break down the key points:
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Social Security and Income Types: The article mentions that Social Security only takes into account income from employment when calculating the retirement earnings test. This means that various other sources of income, such as rental properties, lawsuit payments, inheritances, pensions, investment dividends, IRA distributions, and interest, do not impact Social Security benefits.
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Annual Income Limit and Benefit Withholding: For the year 2023, Social Security employs an annual income limit of $21,240 for individuals who have claimed benefits before reaching full retirement age. If earnings surpass this limit, the Social Security Administration withholds $1 in benefits for every $2 earned above the specified threshold. It's important to note that earnings from employment, net earnings from self-employment, and work-related bonuses and awards contribute to this limit.
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Full Retirement Age and Different Formulas: The full retirement age varies based on the year of birth. For individuals born in 1956, it is 66 and 4 months, while for those born in 1957, it is 66 and 6 months, gradually rising to 67. As a beneficiary approaches full retirement age, a different formula applies. In the specified year, the earnings limit increases to $56,520, and the withholding ratio changes to $1 in benefits for every $3 in income exceeding the cap.
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Earnings Test Removal at Full Retirement Age: Once a beneficiary reaches full retirement age, the earnings test is no longer applicable. At this point, the individual can earn any level of income without it affecting their Social Security benefits.
This comprehensive understanding of Social Security intricacies is crucial for individuals making strategic decisions regarding their retirement income. The nuanced information provided in the article highlights the need for careful planning and awareness of the specific rules and regulations governing Social Security benefits at different stages of one's retirement journey.
