Social Security is an agency that has many rules. There are rules about earnings, there are rules about working, there are age rules, disability rules and rules about rules. Trying to navigate and stay on top of all the rules is impossible, but understanding some of the more important rules is important. One of these rules is The Special Earnings Rule. This rule impacts people who retire in the middle of the year and elect to start collecting Social Security retirement pay. Here is a closer look at that rule.
- Some people who retire in mid-year have already earned more than their yearly earnings limit. That is why we have a special rule that applies to earnings for one year, usually the first year of retirement.
- The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. If you will be under full retirement age for all of 2017, you are considered retired in any month that your earnings are $1,410 or less and you did not perform substantial services in self employment.
- If you reach full retirement age in 2017, you are considered retired in any month that your earnings are $3,740 or less and you did not perform substantial services in self employment.
“Substantial services in self-employment” means that you devote more than 45 hours a month to the business or between 15 and 45 hours to a business in a highly skilled occupation.
Example: John Smith retires at age 62 on June 30, 2017. He earned $37,000 before he retired. On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2017 are $40,000.
Although his earnings for the year substantially exceed the 2017 annual limit ($16,920), John will receive a Social Security payment for July, August and September. This is because he was not self-employed and his earnings in those three months are $1,410 or less per month, the limit for people younger than full retirement age.
John will not receive benefits for October, November or December 2017 because he worked in his business over 45 hours per month in all three months. Beginning in 2018, the deductions are based solely on John’s annual earnings limit.
