For many of our clients, an earlier retirement is both appealing and possible. You’ve established a sizable portfolio for yourself, and your retirement income should be generous enough to provide a comfortable lifestyle. So, it can be tempting to retire before your “full retirement age”, as defined by Social Security. The only problem with this scenario is that some people are surprised to “lose” part or all of their Social Security benefits when doing so. That’s because they decide to work part-time or earn money in other ways that is counted as wages.
Social Security payments might not matter as much to you as they do to other people. But since no one likes an unpleasant surprise, it is still important to learn what you should expect.
First of all, once you reach “full retirement age” (currently 65 to 67, depending on your year of birth), you can earn as much income as you wish and your Social Security benefits won’t be withheld. So, this warning only applies to those who retire before that age.
If you do retire “early”, your Social Security benefits can be withheld if your earnings go above a certain annual threshold. Pensions, interest from investment accounts, and other forms of retirement income do not count toward this threshold. We’re only talking about money earned through some form of continued employment. In that case, the threshold is $16,920, and one dollar of your benefits will be withheld for every two dollars that you earn above that limit.
This money isn’t gone forever; once you reach your full retirement age, Social Security recalculates your benefits and you will receive credit for all the money previously withheld. Still, it’s something to consider.
This could affect you if you’re a business owner, and you don’t technically “go to work” every day but are still earning wages. Before deciding to retire, remember to consult with us about every potential scenario so that you’re well-prepared and can avoid any surprises.