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.

One thing to keep in mind is that Social Security will automatically adjust your withholding throughout the year based on your reported earnings. If you're getting a regular paycheck, they'll typically spread the reduction across your monthly benefit payments rather than taking it all at once at the end of the year. Also, make sure to report any changes in your work status or earnings to SSA promptly. If you reduce your hours, get laid off, or have a significant drop in income during the year, they can adjust your benefits accordingly. The earnings test is applied on an annual basis, so mid-year changes can work in your favor. Given your situation, you might also want to consider whether you could negotiate reduced hours or consulting work at a lower annual income that would keep you closer to the earnings limit while still allowing you to collect some benefits.

I went through this exact scenario 3 years ago when I was 62 and still working. Like others mentioned, SSA definitely uses your W-2 Box 1 earnings, not AGI. What really helped me was creating a detailed spreadsheet to model different scenarios - full-time work vs. part-time vs. waiting until FRA. One thing I discovered that might help: if you can negotiate with your employer to defer some compensation (like bonuses or accumulated PTO payouts) until after you stop working or reach FRA, those payments won't count toward the earnings test since they're considered "special payments" for work done in prior years. Also, don't forget that once you reach FRA, any months where benefits were withheld due to the earnings test will be credited back to you through a higher monthly benefit for life. It's not lost money, just delayed. But in your case with $85k income, you'd probably be better off financially waiting until at least 66 to file. The math just doesn't work out favorably for high earners filing at 62.

This is such a valuable thread! I'm in a very similar situation - turning 62 next year and making around $75k while considering early filing. Reading through everyone's experiences has really opened my eyes to how the earnings test actually works. The distinction between W-2 Box 1 earnings vs AGI is crucial information that I don't think SSA makes clear enough on their website. Like the original poster, I was hoping my 401k contributions would help bring me under the earnings limit, but now I understand they're already factored into Box 1. One question for those who've been through this: has anyone had success negotiating a gradual reduction in work hours as they approach retirement? I'm wondering if transitioning from full-time to part-time over a year or two might be a way to bridge the gap between wanting some SS income and avoiding the harsh penalties of the earnings test. Also, for those who mentioned the withdrawal option (Form SSA-521) - is there any impact on your future benefits if you withdraw your application? I want to make sure there are no hidden consequences before I make my decision. Thanks to everyone for sharing their real-world experiences. This kind of practical advice is so much more helpful than trying to decipher the official SSA publications!