Social Security is a crucial part of retirement planning for many Americans. While most people are aware of the basic rules, some lesser-known regulations can significantly impact your benefits.
Understanding these rules can help you make informed decisions and maximize your retirement income.
1. Earnings Test: Working While Receiving Benefits
If you start receiving Social Security benefits before reaching your full retirement age (FRA), continuing to work can reduce your benefits temporarily. This is due to the “earnings test.”
- Under FRA: In 2025, if you are under FRA for the entire year, $1 is deducted from your benefits for every $2 you earn above $23,400.
- Year You Reach FRA: If you reach FRA in 2025, $1 is deducted for every $3 you earn above $62,160 until the month you reach FRA.
It’s important to note that these reductions are not permanent. Once you reach FRA, your monthly benefit will be recalculated to credit you for the months when benefits were withheld.
2. Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)
The WEP and GPO are provisions that can reduce Social Security benefits for individuals who also receive a pension from employment not covered by Social Security, such as certain government jobs.
- WEP: This provision reduces the Social Security benefits of individuals who have a pension from non-Social Security-covered employment and also qualify for Social Security benefits based on other work.
- GPO: This affects spousal or survivor benefits, reducing them by two-thirds of the amount of the government pension.
However, in January 2025, the Social Security Fairness Act was signed into law, repealing both the WEP and GPO.
This change restores full Social Security benefits to affected individuals, including many public sector retirees.
Additional Considerations
- Delayed Retirement Credits: Delaying your benefits past FRA can increase your monthly benefit by up to 8% per year until age 70.
- Spousal Benefits: Understanding how and when to claim spousal benefits can also impact your overall retirement income.
Conclusion
Being aware of these lesser-known rules can help you make better decisions regarding your Social Security benefits. It’s advisable to consult with a financial advisor or the Social Security Administration to understand how these rules apply to your specific situation.