Q. I retired from teaching in May of 2017. I earned approximately $21,000 dollars from my job. I started drawing my Social Security at age 62 in August and have received about $5,800 for 2017. When and how will Social Security recover its $1 for every $2 I am over?
— Newly retired
A. Here’s how it works.
Under current rules, if you are younger than full retirement age and earn more than the annual earnings limit, your benefit amount may be reduced.
For individuals born between 1943 and 1954, full retirement age is 66 years old, said Dean Shah, a certified financial planner with Stonegate Wealth Management in Oakland.
Beginning in 1955, two months are added to full retirement age for every birth year until FRA reaches 67 years old for those born in 1960 or later, Shah said.
He said typically, if you are younger than your full retirement age for the entire year, Social Security will deduct $1 from your benefit for every $2 you earn above the yearly limit. The limit for 2017 was $16,920.
There is, however, a special rule applied in cases where an individual earns more than the annual limit but is retired — making less than $1,410 per month — for part of the year, he said. In these cases, Social Security will pay a full benefit in any whole month you’re considered retired.
To your specific case: You earned $21,000, which is $4,080 over the $16,920 limit, during 2017.
“Your Social Security benefits should be reduced by $2,040 — $1 for every $2 earned over the limit,” Shah said. “When applying to receive benefits, the individual is required to report income earned up to that point in the year.”
But Shah said it looks like the special rule applies to you.
“Although earnings for the year exceeded 2017’s annual limit, you should receive full Social Security payments because your earnings are $1,410 or less per month, the limit for people younger than full retirement age,” he said. “Since you have been retired the entire time you were collecting benefits, a penalty would not be incurred.”
So it looks like you’re off the hook for Social Security to recover its $1 for every $2 over the limit.
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