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Social Security: Will Investment Income Reduce Your Monthly Benefits?

One reason people are discouraged from taking Social Security early is because outside income can dramatically reduce their benefits prior to "full retirement" at 66. What's important to keep in mind, however, is that this doesn't apply to investment income.

When the Social Security Administration figures out how much to deduct from your benefits before your 66th birthday, it counts only the wages you earn from a job and/or the net profit if you're self-employed. In other words, it doesn't count pensions, annuities, investment income, interest, or other classes of retirement benefits.

The net result is that if you're thinking about retiring early, then there's no reason to be concerned that your Social Security check will be negatively affected by income from your investment or retirement portfolio. To learn more, check out the following video, in which Motley Fool contributor John Maxfield explains the topic further.

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Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 18, 2014, at 2:48 PM, pfk93 wrote:

    The article is correct but ... pensions, interest dividends, etc are used to determine how much of your SS payments you are taxed on (up to a max of 85% of SS payment is taxed. So if you are in 25% tax bracket you will pay 85% * 25% = 21.25% of your SS as taxes).

  • Report this Comment On May 19, 2014, at 9:09 AM, greyhound44 wrote:

    Sure, I'm going to get totally screwed next year when I have to begin taking MRDs from my US$2MM iRAs, but I have not paid a dime in tax on my maximum SS retirement benefits (reduced for age) since age 62.

    You financial air heads should all be so fortunate!!

    retired expatriate MD: NBME: ABIM; ABNM; ABR w/spec comp NR

  • Report this Comment On May 19, 2014, at 12:59 PM, DavBow1 wrote:

    Maybe someone can explain to me how working during retirement reduces Social Security benefits? I continued to work for nine years after starting to receive Social Security, and the only thing it did was to increase my benefits because I was continuing to pay in for SS.

  • Report this Comment On May 20, 2014, at 5:11 PM, Awlbidness wrote:

    Thanks to John Maxfield for this information and it is a confusing topic. Please address and/or clarify the previous comment "that pensions, interest dividends, etc are used to determine how much of your SS payments you are taxed on (Up to a max of 85% of SS payment is taxed.)

    I would like to begin SS at 64, but have been holding off because I did not want to pay taxes on SS. With zero wage or business income, rental income offset to near zero because of depreciation, but dividends and interest from after tax investment accounts (non-IRA) well over the $50K mark will taxes be due on SS or not? I keep seeing conflicting answers on this and need to get it right before I decide to start SS. Thanks,

  • Report this Comment On December 30, 2014, at 1:32 PM, swander wrote:


    I have a question about my mom's SS monthly benefit. My mom is 82 and has been receiving SS benefits for 17 years but it appears things have changed recently.

    In the past, the calculated amount you received from Social Security was the same amount you would receive going forward, other than receiving a cost of living increase. This year an amount is being subtracted from my mom's monthly benefit amount because of her 2013 year's investment income. (She had a good year.) But she's had other good years and the benefit wasn't reduced.

    Why doesn't the calculation they used to compute her benefit amount hold? This hardly seems fair.

    When did this become the law? And do billionaires also end up getting reduced monthly benefits?

    I would appreciate any explanation since I've been searching the web and couldn't find anything definitive.


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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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