34.5 Retiring on Social Security Benefits

Retirement benefits are not paid automatically. You should file for Social Security retirement benefits three months before you want to start receiving benefits. The age for receiving full Social Security benefits, traditionally 65, was increased for those born after 1937. For those born in 1943–1954, you must be age 66 to receive full benefits ; see the Law Alert on this page. Reduced benefits may be elected if you are at least age 62. The reduction for starting benefits early depends on the number of months between the start date and your full Social Security retirement age. For example, if you were born in 1951 and elect benefits at age 62 in 2013, the benefit reduction is 25%. Even though your full Social Security retirement age is over 65, you should register with the Social Security Administration three months before the month in which you turn age 65 to ensure Medicare coverage.

If you were born in 1943 or later and delay benefits beyond full Social Security retirement age of 66, your Social Security benefit increases 8% for each year you delay retirement. The increase for delaying benefits no longer applies once you reach age 70.

Benefits before reaching full retirement age may be reduced because of earnings.

If you are under full retirement age and are receiving benefits, $1 of benefits will be deducted for each $2 earned above an annual limit. In 2012, the limit was $14,640 (the 2013 limit will be listed in the e-Supplement at jklasser.com ). For the year you reach full retirement age, $1 of benefits is deducted for each $3 earned over a different limit. For example, if in 2012 you reached the full Social Security retirement age of 66, benefits were reduced $1 for every $3 of earnings over $38,880, but only earnings before the month in which you reached age 66 are counted. Starting with the month in which you reach full retirement age, you are entitled to full benefits with no limit on how much you may earn.

There is also a favorable rule for the first year of retirement. A full benefit may be received for any month in which your earnings do not exceed 1/12 of the annual limit, even if the yearly limit is exceeded. However, this special rule does not apply for any month in which you are self-employed and devote over 45 hours to the business, or between 15 and 45 hours in the case of a highly skilled profession.

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image Law Alert
Social Security Retirement Age
The retirement age for receiving full Social Security benefits is gradually increasing under current law to 67, as shown below.
    Birth year— Full Social Security retirement age—
    1943–1954 66
      1955 66 and 2 months
      1956 66 and 4 months
      1957 66 and 6 months
      1958 66 and 8 months
      1959 66 and 10 months
    1960 and after 67
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So long as you continue to work, you pay Social Security taxes on your earnings, regardless of your age, so the additional earnings can increase your benefits. In addition, after you reach full retirement age, you will be given credit for any months in which you did not receive a benefit because of your earnings.

Regardless of your age, you may receive any amount of income from sources other than work—for example, pensions or investments—without affecting the amount of Social Security retirement benefits.

EXAMPLES
1. Jones retires and begins receiving reduced Social Security benefits in January 2012 at age 62. Without regard to earnings, he is entitled to receive $975 a month ($11,700 annually). He takes a part time job in May and for the year earns $22,400, which is $7,760 over the $14,640 limit for 2012. Under the regular benefit reduction rule, Jones would lose $3,880 of benefits ($1 for every $2 of earnings over $14,640). However, since this is his first year of retirement, a full benefit is paid for any month in which earnings were $1,220 (1/12 of $14,640) or less.
2. Smith, who began receiving benefits before 2012, reaches full retirement age of 66 in August 2012. Without regard to earnings, he would be entitled to monthly benefits of $850. He was fully employed during the year, earning $40,440 before August and $22,500 for the remainder of the year. The benefit reduction applies to his pre-August benefits. He earned $1,560 over the $38,880 limit and loses $520 of benefits ($1 for every $3 earned over $38,880). Starting in August, he begins to receive his full benefits regardless of the amount of his earnings.
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