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Timing Earnings to Optimize Social Security Retirement Benefits

Posted by Busey Bank on Aug 22, 2022 8:00:00 AM
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If you work after you begin receiving Social Security retirement benefits but before Full Retirement Age (FRA), all or part of your retirement benefit may be withheld if your earnings exceed the retirement earnings test exempt amount. For 2022, this amount is $19,560. However, earnings over this amount won't affect your benefit once you reach FRA.A younger woman and an older woman are at an outdoor produce stand.

Remember, however, if your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the Social Security Administration recalculates your benefit when you reach full retirement age and omits the months in which your benefit was reduced.

How to Do It

Monitor your earnings
The easiest way to avoid having all or part of your Social Security benefit withheld due to excess earnings is to monitor your earnings.

One way is to determine when you actually work and earn income. If you're working for an employer, your wages are counted as income in the year you earn them. Because earnings at full retirement age or later will not reduce your Social Security retirement benefit, you might postpone working. For example, can you work part-time or only part of the year?

Time the start of benefits
Special rules apply to excess earnings during the first year of retirement. You might benefit from electing to begin receiving retirement benefits during a year in which you expect your earnings to be particularly high. During the first year you receive retirement benefits, if your wages from an employer are more than the annual retirement earnings test exempt amount, your retirement benefit will be reduced by the lesser of: (1) the reduction in benefits that would occur if the annual test applied, or (2) the benefit you received in the month or months that you earned more than 1/12th of the annual retirement earnings test exempt amount.

This monthly test for excess earnings only applies if your wages are from an employer. If you are self-employed, the excess earnings test applies in a different manner.


You can avoid having part or all of your Social Security retirement benefit withheld
By monitoring your earnings in retirement, you may be able to avoid earning more than the retirement earnings test exempt amount. By timing when you first begin receiving Social Security retirement benefits, you may be able to lessen the impact of earned income on those benefits.


How will earnings during the year you reach full retirement age affect your retirement benefit? Earnings after full retirement age won't affect your retirement benefit. But few people reach their full retirement age on January 1.

What if you have earnings during the year before you reach full retirement age? The answer is that you are entitled to a special earnings exemption for the months that precede your birthday. For example, if you reach your full retirement age on December 1, you will be entitled to earn up to the earnings test exemption amount for that year during the months that precede your birthday without reducing your benefit, and once you reach your birthday, none of your earnings will reduce your benefit.

So, in this example, as long as your earnings from January through November don't exceed the earnings limit, you will receive all of your retirement benefit. However, if your earnings do exceed that amount $1 of your benefit will be withheld for every $3 of earnings that exceed the limit. In 2022, the retirement earnings test exempt amount is $51,960.

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This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

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