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Great News for Millions of Social Security Beneficiaries in 2019 (and It’s Not the COLA)

By Matthew Frankel, CFP® - Oct 13, 2018 at 9:33AM

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If you collect Social Security and haven’t reached your full retirement age, you need to read this.

The Social Security Administration (SSA) recently released its annual list of inflation-driven changes, and there's one change that Social Security beneficiaries who still work should be quite happy about.

If you collect Social Security but haven't reached your full retirement age yet, your benefits can be withheld if your earnings exceed a certain threshold. This is known as the Social Security earnings test, and for 2019, early Social Security claimers can earn significantly more money without affecting their benefits.

Social Security cards in front of 100- and 20-dollar bills.

Image Source: Getty Images.

The Social Security earnings test

As I mentioned, the amount of money you can earn from work while simultaneously collecting Social Security is limited if you haven't reached full retirement age. For the purposes of the Social Security earnings test, beneficiaries are separated into three groups:

  • If you will reach full retirement age after the calendar year in question, your benefits are reduced by $1 for every $2 in earnings beyond that year's threshold.
  • If you will reach full retirement age during the calendar year, your benefits are reduced by $1 for every $3 in earnings beyond the threshold, but only for those months before your birth month.
  • If you have already reached full retirement age, the earnings test doesn't apply to you. You can collect your entire Social Security benefit regardless of how much earned income you have.

It's also worth noting that the "reduced" benefits are withheld, not forfeited. I'll discuss this more later, but just realize that the earnings test doesn't necessarily result in lost benefits.

2019 limits are increasing

For 2019, the Social Security earnings test limits are increasing significantly. Social Security recipients who will be under their full retirement age for all of 2019 can earn $50 more per month than in 2018 before any benefits are withheld, and those who will reach full retirement age during 2019 can earn $130 more per month than the previous limit.

Category

2018 Earnings Test Limit

2019 Earnings Test Limit

You'll Reach Full Retirement Age After 2019

$17,040/year ($1,420/month)

$17,640/year ($1,470/month)

You'll Reach Full Retirement Age During 2019

$45,360/year ($3,780/month)

$46,920/year ($3,910/month)

Data Source: Social Security Administration.

What it could mean to you

As an example, let's say that you claimed Social Security at age 62 and that you'll be 64 in 2019. As calculated by the SSA, you're entitled to a Social Security benefit of $1,300 per month. Although you receive Social Security, you still work a part-time job and earn $24,000 per year, or $2,000 per month.

Based on the 2018 earnings test limits, $290 of your benefits would be withheld each month, so you would receive only $1,010 per month from Social Security. However, based on the 2019 threshold, $265 of your benefits would be withheld, so your Social Security checks would be $25 higher per month. That's an additional $300 in annual income thanks to the higher earnings test threshold.

If your benefits are withheld, they aren't necessarily lost

To be perfectly clear, if any of your benefits are withheld because your earnings exceed the earnings test threshold, those benefits aren't necessarily lost. Rather, they will serve to permanently increase your benefit once you reach full retirement age. Of course, there's no way to know for sure if you'll live long enough for it to balance out, so this could still be an overall benefit reduction for many beneficiaries.

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