Q:  I understand that those of us who work after starting retirement benefits may earn more the year in which we turn full retirement age.  I will turn 65 March 12, 2006.  What am I allowed to earn?

A:  Like all rules flowing from our federal government, rules governing how much you can earn after starting Social Security benefits are highly complicated.  Seniors who are under full retirement age in 2006 are allowed to earn $12,480 for the year or $1,040 per month.  If you earn more, $1 in Social Security will be withheld for every $2 above the limit.

There’s a special rule that allows you to earn substantially more for the calendar year in which you turn full retirement age.  Full retirement age is not so easy to figure out, because it’s rising.  In your case, for retirees born in 1941, full retirement age is 65 and 8 months.  That means you will reach your full retirement age is November 12, 2006.

In 2006 the special rule allows retirees to earn $33,240 for the year or $2,770 per month in the months prior to turning full retirement age.  If you earn more than that, $1 in Social Security will be withheld for every $3 in earnings above the limit.  In your case you may earn the $2,770 per month from January through October 2006.  The month you reach full retirement age, November, you can start earning as much as you want with no reduction in benefits.

Because of the wording of this provision, and rising eligibility ages, however, some seniors who turn 65 in 2006, especially those who turn 65 in May 2006, will derive no benefit whatsoever from this special rule.  The extra earnings are allowed only in the calendar year one reaches full retirement age.  Persons who are born in May 1941 will not reach full retirement age until January 2007.  Those persons will be able to earn as much as they want to in 2007, but their earnings will be restricted in 2006 to $1,040 per month. 

Fortunately, the same does not hold true for persons who turn 65 in 2006 who were born June through December 1941.  They will get some benefit out of the rule.  Their earnings in 2006 will be restricted to $1,040, but starting in 2007 they will have one or more months in which to earn the higher amount, depending on the month in which they were born.

Seniors who are working after starting benefits should call Social Security toll free at 1-800-772-1213 or visit www.ssa.gov to learn more about Social Security’s earnings restrictions and how the special rule may apply to you.

Sources:  "Social Security Announces 4.1% Benefit Increase for 2006," Social Security Administration fact sheet, October 14, 2005.  "2005 Social Security Explained," Avram L. Sacks, J.D., CCH Incorporated.

February 2006