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Maximize Social Security Benefits When You Retire

Maximize Social Security Benefits When You Retire

Posted on February 22nd, 2021

Get the most from Social Security. Younger retirees face a harsh penalty for working part-time. For every $2 earned over $18,960 in 2021 (up from $18,240 in 2020), you lose $1 in Social Security benefits. In the year you reach full retirement age, a higher earnings threshold applies. Your benefits will be reduced by $1 for every $3 of earnings only when earnings exceed $50,520 in 2021 if you reach full retirement age (up from $48,600 for 2020).

After you reach full retirement age, you can earn unlimited amounts and still qualify for full Social Security benefits. (See the right-hand chart to determine what “full retirement age” means for you.)

However, that’s only earned income. You can have unlimited unearned income from sources like retirement plans, pensions, annuities, interest, dividends and capital gains without losing any Social Security benefits.

This “Social Security Earnings Test” only applies to people below the normal retirement age.

With some advance planning, you might be able to reduce earned income and make up the shortfall with unearned income with a deferred compensation plan. That is, you receive money that you earn one year in a later year, perhaps in retirement.

For income tax purposes, taxes are due when money is received. For Social Security purposes, though, deferred compensation is counted when it’s earned — not when it’s received. So any money you receive from a deferred compensation plan while you’re between age 62 and your full retirement age doesn’t count against Social Security retirement benefits. In other words, you can defer compensation from ages 55 to 61 and receive that money while you’re between 62 and full retirement age.

To do this, the details of your deferred compensation plan should be recorded in the corporate minutes for your company if you’re an owner or part owner. You should also include the appropriate reasons. For example, “the company needs cash now, for expansion purposes, so current compensation is being deferred.”

Then, when you decide to semi-retire, you can work just enough to earn the allowable amount for that year. (The 2021 allowed amount of $18,960 will generally increase annually.) This way, you receive full benefits from Social Security.

In addition to Social Security and deferred compensation, your income can be supplemented by retirement plan payouts and perhaps the sale of company stock shares to your company. You may also have an expense account that can be used as a part-time employee to help offset expenses.

All of these methods help preserve your Social Security benefits and retirement dollars. Beers, Hamerman, Cohen & Burger, P.C. can provide more information.

Road to Retirement

How long before you can collect full benefits? The SSA has prepared a chart to tell you when you reach full retirement age…provided, of course, nothing changes:

Year of BirthRetirement Age to Receive Full Benefits
1937 or earlier65
193865 and 2 months
193965 and 4 months
194065 and 6 months
194165 and 8 months
194265 and 10 months
1943-195466
195566 and 2 months
195666 and 4 months
195766 and 6 months
195866 and 8 months
195966 and 10 months
1960 and later67

Dear Clients, Business Associates and Friends,

As the coronavirus (COVID-19) continues to affect local communities and global economies, you may have concerns about your financial well-being as well as your business and employees. Or you may be wondering about how recently passed legislation impacts you and your enterprise.

BHCB is still at work, continuing to service the needs of our clients.

Whether you have tax or financial planning questions or need advice on ways to navigate the expanded benefits, we are here for you. If you have any questions or concerns, please do not hesitate to contact us at our respective offices. New Haven – 203-787-6527, Fairfield – 203-333-2228.

During this unpredictable and challenging time, it’s more important than ever to stay connected. We are in this together and our thoughts go out to all who have been impacted by this unprecedented situation.

Rest assured; we are here to help with your questions.

We have also assembled a list of resources to help individuals and businesses through this period.