Iβve gotten more than a few emails recently from Social Security beneficiaries who are under age 66 and still working and who are trapped in the web of Social Securityβs convoluted earnings penalty rules and the way they are administered. Those rules are some of the messiest provisions in government and cause countless headaches to both Social Security recipients and Social Security Administration employees.
In a nutshell, those rules say that for every two dollars you earn above $15,720 per year, one dollar must be withheld from your Social Security benefits. That sounds simple enough. But itβs just the tip of the iceberg when you are trying to navigate your way through the icy shoals of this convoluted policy.
I thought I had written a recent column with tips for dealing with this issue. But I dug through my records and learned it actually was more than two years ago. Iβm going to dust off and update that column and reprint it today because the subject matter is as topical as ever.
Q: I started my Social Security benefits at age 62 at the beginning of last year. Then about 8 months later, I decided to go back to work. Because I would be making far more than Social Security rules allow me to do, I immediately reported my anticipated earnings to the Social Security Administration. Several months later, my benefits finally stopped. And I got an βoverpaymentβ letter telling me I had to repay the benefits I got before they were stopped. Then about three months after that, I was laid off. So I ended up making nowhere near what I initially thought I was going to make for the year. I called SSA and reported this. I waited about an hour on hold before I finally talked to someone. And then it took several months, but eventually my Social Security checks started again. But now, just a couple days ago, I got another overpayment letter telling me I owe even more money to the government. This has been the worst experience of my life. What can I do about it?
A: If you read my answer to the next question in this column, you will learn what you should have done. But I know that is water under the bridge for you. The only thing I can suggest you do now is visit your local Social Security office and demand to speak to their earnings-penalty expert. He or she will have all your records and can go over your benefit payment history with you and help you figure out how to handle this.
Q: I am 63 and have been getting Social Security benefits since last year. I have just been offered a job and will make way more than the annual Social Security earnings limit of $15,720. How do I go about stopping my Social Security checks?
A: Well, you could play by the rules, like the guy who submitted the first question used in todayβs column. But look where that got him! In other words, you could contact SSA and report your anticipated earnings. They will eventually stop your benefits. Then you could just cross your fingers that you keep your job and hope you donβt run into problems with starting and stopping your benefits in the future.
Or you could do what Iβve been advising people in your situation for years. And that is to do nothing. Just let your Social Security checks continue to flow into your bank account β remembering all along that you arenβt due any of those benefits and will eventually have to pay them back.
At some point down the road (it might be later this year, or it may even be early next year), SSA will learn that you have been working β either because of earnings reports from your employer or through a computer data exchange with IRS. Once they learn you are working, they will stop your checks. And they will send you an overpayment letter. But, you will be expecting it and, assuming you didnβt lose all the proceeds of your Social Security checks in a wild gambling spree in Las Vegas, you will have the money sitting in your bank account ready to pay them back. (And by the way, they donβt charge interest.)
There are two advantages to doing things this way. One: You can pocket what little interest you might have earned on those benefit payments before they were stopped. And two: You avoid all the back and forth hassles with SSA β the calling and waiting on hold and recalling and starting and stopping Social Security checks that the guy who sent the first letter experienced.
What I am suggesting you do isnβt exactly kosher, but itβs not illegal. Youβd simply be bending the rules a bit. As long as SSA eventually gets its money back, it will be satisfied.
And finally, here is a message to both of these guys, and to any of my readers who are under age 66, getting Social Security checks, and who decide to return to work thus forcing a suspension of those checks. Once you reach age 66, you will get credit for those months in which you did not receive a benefit β in the form of an adjustment to your initial benefit reduction. Here is an example.
Mike started his Social Security benefits at age 62. Those benefits came with a 25 percent reduction. In other words, his monthly checks were 75 percent of his full retirement (age 66) rate. At age 63, Mike returned to work and his benefits were suspended. He kept working even beyond age 66. But at age 66, his Social Security checks were reinstated because at that point the earnings limit rules no longer applied to him. At about the same time, they recalculated his benefit rate to give him credit for the three years he didnβt get any Social Security checks. So, instead of a 25 percent reduction, they applied only about a 7 percent reduction β for the first 12 months he received Social Security benefits before the suspension. Mike doesnβt have to request this readjustment procedure. It is done automatically after he turns age 66.
