I received several questions about the Social Security
earnings test after the recent brief article (Social Security Changes for 2012). Based on these questions, it appears that not
everyone understands how the Social Security earnings test works. Here’s an explanation.
Any Social Security recipient who is under their full
retirement age is subject to an annual earnings test. For every dollar earned above the earnings
test amount, there is a reduction in the individual’s Social Security
benefit. There are two levels to the
The first level applies to Social Security recipients
between age 62 and the year they reach their full retirement age. The 2012 earnings test amount is $14,640
($1,220 per month).
Sally is a Social Security
recipient who is age 62 and will turn 66 (her full retirement age) on October
15, 2015. She will be subject to this
earnings test from now through the end of December 2014. For every $2 she earns above the earnings
test (which is adjusted annually by inflation), her SS benefit will be reduced
FERS retirees face the same
earnings test on their Special Retirement Supplement.
The second level applies to Social Security recipients in
the year in which they reach their full retirement age. The 2012 earnings test amount is $38,880
($3,240 per month).
Bill is a Social Security recipient
who is age 65 and will turn age 66 (his full retirement age) on September 21,
2012. He will be subject to the first
earnings test (described above) through December of 2011. Beginning in January of 2012, through the end
of August 2012 he becomes subject to the higher earnings test. During that period of time, for every $3 he earns
above $3,240 a month, his SS benefit will be reduced by $1. On September 1, 2012 Bill is no longer
subject to any earnings test.
The earnings test only applies to earned income. Investments, pensions, etc. are not
considered earnings for the purpose of the test.