The 2018 Social Security income limits have been announced.
It is important to understand these numbers and how your benefit may be affected if you are under full retirement age.
WATCH THIS VIDEO TO FIND OUT MORE
In this video we discuss:
- The new 2018 Social Security income limit
- The monthly income limit in the first year of retirement
- Special rules called “substantial services” for self employed individuals
Hey everyone this is Devin Carroll. If you’re under full retirement age, the Social Security Administration has a limit on the amount of earnings that you can have while you’re drawing a Social Security benefit.
These catch a lot of people by surprise, and these numbers change every year. I want you to know what they are. So, let’s dive in. There are three bands that apply to most individuals. The first is simply if you are under full retirement age and for individuals there, the earnings limitation is $17,040. If you go over that, Social Security Administration will start to withhold $1 in benefits for every two that you exceed that limit.
And then at full retirement age or older, there is absolutely no limit on the amount of earnings that you can have. Warren Buffett and other billionaires just like him are getting their full Social Security benefit with no earnings limit. Now the one caveat to this, as you see there is a center band that’s empty and that is in the calendar year that you reach your full retirement age, the limit changes and it’s substantially higher.
So for example, if my birthday is July 1 and beginning on January 1 of that year that I get to be full retirement age, my income limit goes up from $17,040 all the way up to $45,360. Then the amount they withhold is not nearly as high either. In this case for every $3 over the limit, $1 in benefits is withheld, all the way up until my month the full retirement age.
One of the exceptions to this annual limit is in the first year you retire. The Social Security Administration will refer to this as a grace year. In that year, they will use a monthly limit instead of the annual limit. What this means is that if you had a job where you made $50,000 from January all the way up until July, and then you retired, all of those prior earnings would not apply. Only the monthly amount of earnings moving forward. So in that year, you would clearly be well over the annual amount, but because you didn’t exceed the monthly amount, moving forward, the earnings limit would not apply to you.
You can see that the same situation exist if you’re under full retirement age, and then in the year you attain full retirement age, it’s much higher.
Now, one of the questions that I always get is, okay, Devin, so I can’t have earnings, but what counts as earnings? Well, there’s a lot of different things to look at, but the vast majority of the questions that I get are around these items. What does count as employment income, and that’s income that you get reported to you on a Form W2 or net earnings from self employment.
We’re going to come back and cover that in just a moment because that’s a tricky one for self-employed people, and you have to be really careful. What does not, pension payments, annuity payments, IRA distributions, dividend, interest income, capital gains, and that’s just a small list. There’s a lot of other special payments that you can receive that may or may not count. And so if it’s anything beyond these broad categories here, you might need to dive in with the help of a good accountant and figure this out.
Let’s take just a moment and talk about this Substantial Services’ Rule for self-employed individuals. Generally speaking, it will apply to individuals who work in their business more than 45 hours per month. However, if the work is considered highly skilled, it can also apply to you if you work as little as 15 hours per month. I don’t want to get too deep into it, but I do want to show you some of the language from the Social Security Administration website.
Under this rule, they’re not necessarily looking at profit or loss, but they’re looking at how much time do you spend there. That’s how they can classify, are you really retiree, and you’ll see right in that last sentence of factor number one where it says as few as 15 hours of service a month could be substantial, if for example, the hours involve management of a sizable business or were spent in a highly skilled occupation.
Then they go on to list some other factors that they consider. But I’ll tell you this is ambiguous. This leaves it open to some interpretation. So understanding this rule and getting advice on this is very, very important. If you are self-employed, you are less than full retirement age and you plan to work more than 15 hours per month, please get the advice of a professional who understands this topic.
Let me tell you why. If you do work today and then receive a notice from the Social Security Administration, three, four, five years from now, that says that you were overpaid because the earnings limit actually applied to you 48 months ago. Trying to unravel that and make sense out of those overpayment notices is almost impossible and you don’t want to risk getting one of those from the Administration. So get the advice of someone who can help you figure out will this apply to me.
Also don’t take this video as specific advice for your situation. Talk to your own people. I don’t know you. I haven’t met with you. I don’t understand your specific situation. And listen sometimes you only get one chance to do it right. So make sure you do that with good quality counsel.
Well, that’s it. That’s the Social Security earnings limit for 2018. I hope you’ve enjoyed this video and find my other videos on my YouTube channel and visit socialsecurityintelligence.com for more social security information. And hey, for broader retirement information be sure and check out my podcast, Big Picture Retirement. You can find that on iTunes or Google Play, anywhere else podcasts are found. Have a great day.