Dear Rusty: I’m considering filing for my Social Security (SS) at age 64 in February, before my full retirement age of 66 years and 10 months. I’m working full time and would like to continue earning until I meet the $21,240 limit for this year. When does the $21,240 limit go into effect? Does it start after receiving my first SS benefit deposit? Or does Social Security go by my year-to-date earnings starting on Jan. 1?

If I file in February and it takes 90 days to receive my first SS deposit, and at that point my year-to-date earnings are $18,500, can I continue to work until I earn the balance of the $21,240 ($2,740) and then stop working? Or do they only count the earnings after I receive the first benefit payment? I know that for anything earned over $21,240 I’ll need to repay $1 for every $2 over the limit.

Signed: Ready to Retire

Dear Ready to Retire: Since you haven’t yet reached your full retirement age (FRA), if you claim now and are working, things will work somewhat differently during your first year collecting benefits. 

If you claim for your benefits to start in February, only your earnings starting in February count toward the earnings limit. But during your first calendar year, once your benefits start, you’ll be subject to a monthly earnings limit of $1,770 and, if that is exceeded in any month (February through December), you won’t be eligible for benefits for that month. That means that the Social Security Administration (SSA) could withhold your entire monthly amount for any 2023 month after January that exceeds the monthly limit. This is part of Social Security’s “first year rule,” which applies only during your first calendar year collecting. If, instead, you claim for your benefits to start in March, then the monthly limit will apply from March thru December. Remember, it’s not when your payment is received that counts; it’s when your benefits start (the SSA pays benefits in the month following the month earned). Beginning in 2024 only the annual limit would apply. 

Nevertheless, the first-year rule offers some latitude on your earnings. If the penalty for exceeding the annual earnings limit ($21,240 for 2023) is less than the penalty which results from using the monthly limit, the SSA will use the annual limit and assess the smaller penalty amount. So, if your annual (full year) 2023 earnings are less than $21,240, no penalty will be assessed, or if you only exceed the annual limit by a small amount, you’ll be assessed a penalty of $1 for every $2 you are over the limit. But if your annual earnings are substantially more than the 2023 limit, the SSA may deem you temporarily ineligible to get benefits. When you complete your application there will be a section asking you to tell the agency about this year’s earnings as well as what you expect next year’s earnings to be. From that, the SSA will decide whether you are currently eligible to collect benefits. 

So, if your goal is to work only to the point that no penalty will be assessed, you can work until your 2023 earnings reach $21,240 (whenever that is). Or you could work even a little bit longer and simply take the penalty (half of what you exceed the annual limit by), in which case the SSA will simply withhold future benefits for enough months for it to recover what is owed for exceeding the limit. But if you continue working full time and will substantially exceed the annual limit, it’s likely the Social Security Administration will say you are temporarily ineligible to collect benefits (until your earnings are less or you reach your full retirement age when the earnings test no longer applies).                               

Russell Gloor is a national Social Security advisor at the AMAC Foundation, the nonprofit arm of the Association of Mature American Citizens (AMAC). The 2.4-million-member AMAC says it is a senior advocacy organization. Send your questions to: ssadvisor@amacfoundation.org.

Author’s note: This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). The NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity.