work during year of reaching full retirement age

[OtisMozzetti]

I suspect that there is an inaccuracy, arising from an unclear explanation by the Social Security Admin., on page 22-3 of TTB--2010 Tax Year.

The issue is how much benefits would be lost by Arne, who earned $38,000 during the eight months from January to August, and who reached full retirement age [during] September 2011. According to the example in TTB, Arne loses ($38,000 - $37,680)/3 or $107. I strongly suspect that Arne loses up to (38,000 - $3160 x 8)/3 = (38,000 - $25,280)/3 = $12,720/3 = $4240 from those first 8 months of benefits.

The correctness of the lower annual limit can be seen if Arne had reached full retirement age during one of the early months of the year. Does anyone really believe that Arne would be allowed to earn the full $37,680 during only a few months?

I understand that the $37,680 = $3160 x 12 figure above will be replaced by $38,880 = $3240 x 12 during 2012.

I hope that Bees Knees is reading this in order that TMI can get this accurate in future editions.

[Bees Knees]

The calculation in TTB agrees with the calculation given on the Social Security website:

http://www.ssa.gov/pubs/10069.html

Or, let us say you were not yet full retirement age at the beginning of the year, but reach it in November 2011. You earned $39,000 in the 10 months from January through October. During this period, we would withhold $440 ($1 for every $3 you earn above the $37,680 limit).

The earnings limit for the year of full retirement applies to the months prior to full retirement. It does not get pro-rated for the entire year, as your example suggests. (You don't take the earnings limit and divide by 12 to come up with a monthly limit. There is no such thing as a monthly limit.)

I agree the calculation doesn't make sense, as someone who reaches full retirement age early in the year can earn a whole lot more per month prior to full retirement age than someone who reaches full retirement age later in the year. However, those are the rules. Nobody said they have to make sense.

[OtisMozzetti]

The issue is how much benefits would be lost by Arne, who earned $38,000 during the eight months from January to August, and who reached full retirement age [during] September 2011. According to the example in TTB, Arne loses ($38,000 - $37,680)/3 or $107. I strongly suspect that Arne loses up to (38,000 - $3160 x 8)/3 = (38,000 - $25,280)/3 = $12,720/3 = $4240 from those first 8 months of benefits.

The correctness of the lower annual limit can be seen if Arne had reached full retirement age during one of the early months of the year. Does anyone really believe that Arne would be allowed to earn the full $37,680 during only a few months?

I pulled up Social Security Publication #10069 (retirement), and it does provide a specific example, on page 4 of the 1/11 edition, similar to that in The Tax Book. That means that during the year that the beneficiary gets up to full retirement age, the full annual limit can be earned without any loss of benefits, regardless of how few months come along before the beneficiary reaches the full retirement age.

[taxmom34]

Otis is right. there is an exeption for the year of retirement. all earnings prior are not used in any calculation. that includes any of the accumulated vacation days and sick days.