9 Rules for Retiree Jobs and Social Security

How earnings of retirement-age workers can be affected by Social Security tax and benefit rules.


As the jobless recovery threatens to once again become the jobless recession, quick and easy solutions have yielded to common-sense rules for surviving the prolonged downturn. Most advice involves variations of cutting your spending and increasing your income. Big surprise, right? But these truisms are, of course, much easier to say than to achieve.

For many people already receiving Social Security, getting a part-time job makes sense. It might be an attractive solution from an employer's perspective as well. After all, companies are also looking for ways to cut expenses these days. Finding an experienced employee eager for part-time work and who, thanks to Medicare, does not need health insurance, would be an ideal hire for lots of employers.

[See Social Security's Long-Term Outlook.]

If you are already receiving Social Security benefits and want to go back to work to supplement your income, here are major Social Security rules affecting taxes and benefits of wage earners. These rules are explained in detail in two Social Security publications: "How Work Affects Your Benefits" and "If You Are Self Employed." If you still have questions, Social Security representatives can be reached by telephone at 800-772-1213 on weekdays between 7 a.m. and 7 p.m.

1. If you are 66 years old (full retirement age for anyone born after Jan. 1, 1943) or older, your Social Security benefits are not reduced at all by outside earnings.

2. If you are younger than 66 during all of 2011 and receiving Social Security benefits, they will be reduced by $1 for each $2 you earn in excess of $14,160 during the year. For example, you begin benefits in January at age 62 and are entitled to a monthly benefit of $600. You plan to work throughout the year and earn money at an annual rate of $20,480 during 2011. That's $6,320 above the $14,160 limit, so you would not be paid benefits equal to half of that amount, or $3,160. Social Security would accomplish this by paying you no benefits for the first six months of the year and your full $600 benefit for the final six months of 2011. By eliminating six 2011 payments, Social Security is withholding $3,600 in benefits, which is $440 more than the $3,160 that should be withheld. The $440 difference will be paid to you in 2012.

[See Get Ready for 2012 Social Security, Medicare Changes.]

3. If you turn 66 during 2011 and are receiving Social Security benefits, they will be reduced by $1 for each $3 of earnings in excess of $37,680 until your 66th birthday (after which there is no reduction in benefits due to outside earnings). For example, you are receiving $600 a month in benefits and turn 66 in November 2011, having earned $39,000 through the first 10 months of the year. Social Security would withhold $440 in payments (one-third of the difference between $39,000 and the $37,680 ceiling). This amount would be withheld by foregoing your first $600 check. The $160 difference between $600 and $440 would be paid to you in January 2012.

4. Even if you are under full retirement age for all of 2011, you can still claim monthly Social Security benefits if your monthly earnings are less than $1,180 (which is one-twelfth of $14,160), regardless of how much money you've earned during the year. For example, you make $45,000 from January through October but then move into a part-time job paying $500 a month and begin claiming Social Security benefits. You will get the full benefit due you for the months of November and December.

5. If other family members receive benefits based on your work, they might be reduced if your earnings also reduce your benefits.

6. If you work for someone else, only your wages count toward the annual earnings limits. If you are self-employed, only your net earnings count toward the annual earnings limits. Net earnings are reduced by half of any Social Security taxes you pay as well as by allowable business deductions and depreciation. Earnings from other sources—government benefits, private pensions, investment and annuity earnings, capital gains, and interest—are not counted toward the annual Social Security earnings limits.

[See Begin Social Security Benefits for the Right Reasons.]

7. Wage income is counted when it is earned, not when it is paid. Self-employment income, however, counts when it is received, not when it is earned.

8. If you have benefits withheld because of outside earnings, they are not lost to you but simply delayed. They will be added to your benefits once you've reached full employment age. For example, you have not reached full retirement age in 2011 and are entitled to monthly benefits of $750. Due to outside earnings, your monthly benefit is reduced by $50 to $700 for all 12 months of 2011. When you reach the full retirement age of 66, your benefit would be increased by $50 a month to $800 a month for 12 months.

9. If you are "retired" and receiving Social Security benefits but your wage earnings qualify as one of your highest years of earnings, Social Security will automatically increase your benefit. There is a one-year lag, meaning that if your 2011 earnings raised your benefit, you would begin getting that higher benefit in December 2012, and it would be retroactive to January 2012.

If you are thinking of going back to work, here's a list from AARP of what it calls 50 "hot" second-career jobs.

Twitter: @PhilMoeller