Help Me Retire: I’m 61 and earned $83,200 in investment income last year. Will that affect my Social Security benefit?

I’m 61 and I generated about $83,200 last year in dividend and municipal-bond income. I reinvested all of it because I’m still working. This year, I project that figure will be about $89,000, again in dividends and munis. I’m very fortunate. But it’s well beyond the threshold. If Social Security withholds $1 of my benefit for every $2 I earn over the threshold, I wouldn’t get much of anything from Social Security if I applied for it now. Do I have any choice but to wait? 

Thank you very much for your thoughts.  

See: I’ll be 60, have $95,000 in cash and no debts — I think I can retire, but financial seminars say otherwise

Dear reader, 

Thanks so much for your kind words, and for your question. 

Yes, it’s true that the Social Security Administration deducts a portion of your benefit if you’re still working. But that deduction is based solely on wages, not on investment income, interest, pensions and annuities or veterans’ or other government benefits. So you’re safe! 

But because you’re only 61, you would have to wait in any case. The earliest you can claim your own retirement benefits under regular circumstances is at age 62. And for anyone born after 1960, full retirement age is 67. 

You didn’t mention how much you earn, but it’s important to take note of your full retirement age, or FRA, because your age when you claim will affect your benefit. The FRA also affects which of the two earnings limits you would follow. There’s one limit for people who are under full retirement age for the entire year, and another for those who will reach FRA during the year or have reached it already. 

Check out MarketWatch’s Retirement Hacks column for actionable pieces of advice for your own retirement savings journey. 

The earnings limit for anyone under FRA this year is $21,240. As you note, for those in that group, the Social Security Administration deducts $1 in benefits for every $2 in earnings above the limit. Although your investment income does not count toward that limit, you should still do the math to make sure your regular earnings wouldn’t cause your benefit to be wiped out completely or even partially. 

To do this, take your wage earnings and subtract the limit. When you determine how much above the limit you are, divide that figure by two (since it’s a $1 deduction for every $2 in earnings above the limit). That’s the amount by which your benefit would be temporarily reduced. If you know how much your Social Security benefit should be (you can find that in your Social Security statements or by setting up an account at the ssa.gov website), you can subtract the amount that would be deducted from your expected annual benefit to see how much you’d actually get. 

This wouldn’t apply to you for a few years yet, at which point the limit may be different. But for anyone else who is wondering: In 2023, for those reaching full retirement age, the earnings limit is $56,520, and the Social Security Administration deducts $1 in benefits for every $3 above that (as opposed to $2 for those who are under FRA). Earnings are only counted up until your birth month, so if you were born in February, the limit would be applied for the month of January. If your birthday is in December, your earnings would be subject to the limit for the first 11 months of the year. 

Also see: I tested 2 free Social Security retirement calculators, and here’s what I found

There are, of course, a few other factors to consider when deciding when to take Social Security and whether it makes sense to claim early or delay. For example, your benefit depends partly on when you claim — the later you claim, the higher your monthly benefit. Full retirement age is when beneficiaries receive 100% of the money they’re owed. Claiming later will result in a bumped-up amount — up to age 70, after which benefits no longer increase — and claiming earlier will result in a permanent reduction in benefits. 

This reduction, to be clear, is not the same as the deduction for exceeding the earnings limit. The Social Security Administration will recalculate your benefits to account for the amount that was deducted because of that limit, but not for the reduction if you claim your benefits prior to full retirement age. 

Other considerations to make when deciding the best time to take Social Security include how long you expect to live, your health and, of course, your finances. You might expect to live for decades into retirement and to remain relatively healthy, but if you can’t afford to delay receiving Social Security benefits because the loss of income after retiring would make it hard to pay the bills, then you’ll need to claim sooner. 

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Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com