3 Social Security Rules Retirees Forget About
Key Points
Many retirees don't understand the Social Security earnings test.
Retirees also don't realize there may be a do-over option if they claimed early.
Taxes on benefits are another commonly overlooked aspect of Social Security.
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Social Security is complicated, and as a result, there are many rules that seniors often forget about. Unfortunately, this can sometimes lead retirees to inadvertently reduce their benefits.
If you want to avoid this, here are three rules to keep in mind as you plan for retirement.
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1. The earnings test affects your ability to work and collect Social Security
The Social Security earnings test is one major rule that often catches working retirees off guard. Under this rule, if you won't reach your full retirement age at any point during the year, you'll start to have some of your Social Security benefits withheld once your earnings exceed $24,480. Specifically, you lose $1 for every $2 above this threshold.
If you'll reach FRA at some point during the year but haven't yet, you'll lose $1 for every $3 above a higher threshold of $65,160. So you can work more, but you'll still temporarily forfeit some benefits once your earnings are high enough.
The good news is that your benefit is recalculated when you reach FRA to account for missed benefits. But this rule can still affect you if you were hoping to collect Social Security while also earning a paycheck.
2. Withdrawing or suspending your Social Security claim may be possible
There's another rule to be aware of that most people overlook. If you claim your benefits early and then realize you wish you had waited so you could increase your Social Security income, you have options.
If it has been less than 12 months since you claimed benefits, you can withdraw your claim. While you'll have to pay back everything you collected from Social Security, it'll be as if your early claim never happened.
If you've already reached your full retirement age but are under age 70, you also have the option to suspend your benefits. This could allow you to earn delayed retirement credits that would have otherwise been unavailable. You don't have to pay back what you already collected, but you do give up the income during the time when benefits are suspended.
3. Taxes may be taken out of your Social Security benefits
Finally, another rule that may catch you off guard is that you may owe taxes on at least some of your benefits.
If your provisional income exceeds $25,000 as a single tax filer or $32,000 as a married joint filer, then at least a portion of your Social Security becomes taxable. Provisional income is half your Social Security check, plus all taxable and some non-taxable income -- but it's still easy to meet these thresholds and end up owing money to the IRS, as they're not adjusted for inflation.
You should be aware of these rules when planning for retirement so you can make fully informed choices about what your Social Security will do for you.
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