Social Security early retirement with high income - W-2 vs AGI for earnings limit calculation?

Social Security uses your gross wages (box 1 of W-2) and net self-employment income to calculate the earnings test - not your AGI. Pre-tax retirement contributions like 401k do reduce the income shown in box 1, but voluntary IRA contributions don't affect this calculation since they happen after your wages are reported. With $85k income minus $30,500 in 401k, your countable earnings would still be around $54,500, which exceeds the limit by $32,180. That means approximately $16,090 would be withheld from your annual benefit amount. Remember that these benefits aren't permanently lost - when you reach your full retirement age (probably 67), your benefit will be recalculated to credit you for the months benefits were withheld.

same thing happened with my husband last yr... he got hit with a BIG reduction cuz hes still working good money. we didnt know they use the W2 box 1 amount so we were shocked when SS held back most of his checks!!

Just to add some nuance to what others have said: 1) The earnings test counts your GROSS earnings from employment (W-2 Box 1) or net self-employment income 2) Pre-tax deductions like 401(k), FSA, and health insurance premiums DO reduce your countable income because they're removed before Box 1 3) Traditional IRA contributions DO NOT reduce your countable income for the earnings test because they're after-tax deductions (even though they reduce your AGI for tax purposes) 4) Special payments for work done in previous years don't count (bonuses for past work, accumulated vacation pay, etc.) In your specific situation, working full-time at $85k minus the 401(k) contribution, you'd still be well over the limit. At your age, waiting until closer to your FRA might make more financial sense unless you absolutely need the income now.

why do u even wnt to file early??? just wait till FRA and get your full benefit, duh!!!

I got caught in this same situation 2 years ago. I was 63, still working, and filed early thinking my 403(b) contributions would help. NOPE! The Social Security office kept taking more and more of my benefit until I was barely getting anything. The worst part was dealing with the SSA to understand what was happening. I spent HOURS on hold and got disconnected multiple times trying to speak with someone. So frustrating!!!

I made a miscalculation like this last year. After 3 months of reduced benefits, I went to my local SSA office and withdrew my application (Form SSA-521). They let you do this within 12 months of first receiving benefits. I had to repay what I'd received, but then it was like I never applied. Now I'm waiting until my FRA to avoid the earnings test completely.

One important point I don't see mentioned yet - the earnings limit increases in the year you reach FRA. For 2024, if you reach FRA during the year, the limit jumps to $59,520, and they only deduct $1 for every $3 over that amount. Plus, they only count earnings before the month you reach FRA. So depending on your birthdate, you might consider waiting until January of the year you reach FRA if that's only a year or two away. That higher limit might make claiming more advantageous than claiming at 62.

My sister tried to get answers from SS on this EXACT question and got nowhere!! She called for THREE DAYS and either got disconnected or told different things by different ppl. its so frustrating!!!!

Just to add one more consideration: while your benefits are reduced due to the earnings test, you're still earning additional credits that might increase your future benefit amount. When you file while working, they recalculate your benefit annually to include any higher earning years that might replace lower ones in your top 35 years. So even with the reduction, continuing to work at a good salary could eventually increase your monthly benefit. That said, with your income level, waiting until at least 66 or your full retirement age would likely be more financially advantageous in the long run.