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early retirement

How the “earnings test” works

August 6, 2012 By Liz Weston

Dear Liz: Hi. I learned the hard way about taking early Social Security benefits. I kept working and wound up losing $1 of Social Security benefits for every $2 I earned over a certain low threshold. Do I get this money back at some point or is it a penalty?

 Answer: It’s considered a penalty, but you also get the money back. This so-called “earnings test” is one of several ways the Social Security system tries to discourage people from taking benefits early. The threshold for exempt earnings in 2012 is $14,640. After that point, your Social Security checks will be reduced $1 for every $2 you earn until you reach full retirement age. Once you reach that age, your checks will be increased to reflect the withheld amounts.

Filed Under: Q&A, Retirement Tagged With: early retirement, earnings test, Social Security

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