This article is part of a series dealing with common misconceptions about federal benefits and retirement. These articles are written by John Grobe and Ehren Clovis. To see more articles from this series, search for “retirement myths” using the search box at the top of any page on the FedSmith.com site.
Myth-conception: My pension and my TSP withdrawals will count towards the Social Security earnings test. That means My Social Security will be reduced or eliminated until I reach my “full retirement” age under Social Security.
Reality: The Social Security earnings test counts only “earned income”, not pensions, Social Security, investments, etc.
Previous articles on the FedSmith.com web site have addressed the Social Security earnings test. The test (which also applies to the FERS annuity supplement) is as follows for 2013:
- For every $2 earned above $15,120, an individual’s benefit will be reduced by $1. This part of the test applies to individuals in the year(s) before they reach their Social Security full retirement age.
- For every $3 earned above $40,080, an individual’s benefit will be reduced by $1. This part of the test applies to individuals in the year in which they reach their full retirement age.
- Once an individual enters the month in which they reach their full retirement age, there is no earnings test.
A fair number of potential retirees worry that their pension and their TSP payments will count against the earnings test and preclude them from receiving Social Security benefits until they reach their full retirement age. Nothing could be further from the truth.
The Social Security earnings test is a test only on earned income. It is not a test on all income. With few exceptions (mainly applying to insurance salespeople and farmers) the only items that Social Security will count towards the earnings test are 1) gross wages; and 2) net earnings from self-employment.
In addition to not counting our pension and our TSP withdrawals as earned income, Social Security will also not count the following:
- Investment earnings;
- Annuities; and
- Capital gains.
Any payment you receive for unused annual leave will also not count as earned income. Why? It is a payment for time that accumulated before you retired.
Go to the Social Security website for more information on the earnings test and other items.