A study carried out by Voya Financial showed that more than 50% of the participants plan to continue working after they retire. For federal workers who also wish to follow the same path, it is common to speculate that paid employment will not stop the receipt of retirement savings and social security benefits. However, such speculations might not be entirely accurate.
Suppose you start receiving your Social Security benefits before attaining full retirement age. In that case, the system will reduce the benefits using the Social Security earnings test. The test uses certain thresholds to limit how much money a retiree in paid employment will be eligible to receive.
However, the reduction is only temporary. Social Security will return the benefits they withheld as soon as such a worker attains full retirement age. As great as this sounds, the years of reductions can be challenging for retirees trying to adjust their budgets.
What You Need to Know About the Social Security Earnings Test
The following criteria will determine how much the earnings test will affect your Social Security benefits before you attain full retirement age.
Phase 1: (For feds who will not reach their full retirement age in 2021). People who belong to this phase can receive up to $18,969 yearly without suffering any reductions to their Social Security benefits. However, for every $2 of earnings over that amount, there will be a deduction of $1. For workers who will get deductions, Social Security withholds payments in the form of whole sums at the beginning of every year, but when it withholds too much money, it has to refund it in the following calendar year.
Phase 2: (for feds whose full retirement ages begin from 2021). People in this category can earn up to $50,520 yearly from paid employment after retirement without losing a dime from their benefits. Also, deductions begin at $1 for every $3 they earn above that figure.
Phase 3: (Feds who have reached full retirement age before 2021). People who fall into this category need not be concerned about deductions regardless of how much they earn in their new paid employment.
Special Waiver: Filers who retire in the middle of the year and fall in categories 1 and 2 can receive their full benefits without deductions if their paid employment stops as soon as they start receiving their Social Security benefits. Paid employment income does not affect people in this category since it stops before they start receiving their Social Security benefits.
Calculation of Social Security Benefits
The amount a person will receive from Social Security upon retirement is dependent on their earnings while in service and their age. Social Security benefits do not begin until retirees attain their full retirement age. Workers born between 1943 and 1960 will start receiving the benefits when they are between ages 66 and 67.
However, workers can still claim their Social Security benefits before their full retirement age. But, they will have to bear deductions. On the other hand, workers who wait until their full retirement age receive their full benefits or Primary Insurance Amounts (PIA). Workers who start receiving their Social Security benefits after their full retirement age will receive increased sums.