Social Security earnings limit confusion - can we start benefits with vacation pay without penalty?

You're mostly right about how the earnings test works, but there are some important details you should understand. For your wife: If she exceeds both monthly and annual limits, the SSA will withhold $1 in benefits for every $2 she earns above the annual limit. The vacation payout in April would count as earnings for that month. She can still apply for April benefits, but she might see reduced payments or no payments until the withholding is satisfied. For you: You're correct! If your annual earnings stay below $29,760 for 2025, you can start your benefits in March even if your March income exceeds the monthly limit. The monthly test only applies during the first year you claim and only for months where you don't earn above substantial limits. One thing to consider: Have you looked at the long-term impact of claiming at 65 vs. waiting until FRA? Each year you wait increases your benefit amount by about 8%.

Ugh, the earnings test is THE WORST part of Social Security!! I went through this NIGHTMARE last year. The SSA reps gave me THREE different answers when I called about my retirement and working part-time. My advice? FILE ANYWAY for the months you want. Let the SSA figure out the withholding. They'll adjust your benefits based on your actual earnings when you file your tax return for 2025. If they withhold too much, you'll get money back! If they don't withhold enough, you'll owe (happened to me - NOT FUN). The monthly earnings test is supposed to help people who retire mid-year not get penalized for high earnings earlier in the year, but the way SSA implements it is a MESS. Good luck trying to get a straight answer from them - I waited on hold for 3 HOURS only to be disconnected!!

I work with pre-retirees, and the earnings test confusion is something I see regularly. Let me try to make this clearer: 1. For your wife: Since she's working through March with vacation pay in April, and will exceed the annual limit, she'll be subject to the $1 for $2 reduction. She CAN start benefits in April, but some portion will be withheld based on her projected earnings. The key question is HOW MUCH over the limit she'll be. 2. For you: Your understanding is correct. Since you'll be under the annual limit for 2025, you can start in March without penalty, even though your March earnings exceed the monthly limit. 3. Regarding the gap month: This is common when transitioning from work to Social Security. Remember that SS pays a month behind (March benefits come in April), which often creates that gap. One practical solution many of my clients use: Have an emergency fund to cover that gap month, knowing that once both SS payments start flowing, your monthly income will stabilize. Also, be sure to submit your applications 2-3 months before you want benefits to begin to avoid processing delays.

when I retired last year i had this same problem with the earnings test! I couldn't understand the monthly vs yearly thing at all! ended up just waiting an extra month to be safe so I wouldn't have to pay anything back. btw they do ask about your expected earnings when you apply so make sure to tell them everything

I was in a similar situation last year and had ENDLESS problems reaching SSA to get straight answers about the earnings test. After trying to call for weeks and getting nowhere, I discovered Claimyr (claimyr.com) which got me through to an actual SSA agent in about 20 minutes instead of waiting on hold for hours or getting disconnected. The agent was able to run different scenarios for me - starting benefits in different months and calculating exactly how much would be withheld based on my projected earnings. This helped me pick the optimal month to start. They have a video showing how it works: https://youtu.be/Z-BRbJw3puU In my case, I learned that starting benefits one month later actually worked out better financially since my April earnings would have triggered a bigger withholding than I realized.

my husband is dealing with this right now actually. he started SS in february but he's still working part time and will prob go over the limit. the SSA is taking $340 out of every check based on what he told them he'll earn this year. they said they'll recalculate next year after our taxes and either take more or give him money back. it's complicated!!! 😩

Here's what I recommend based on your situation: 1. For your wife: If she'll be $15,000 over the annual limit, SSA will withhold approximately $7,500 in benefits ($1 for every $2 over). Depending on her monthly benefit amount, this could mean several months of complete withholding before she receives payments. She could either: - Start benefits in April as planned, understanding initial payments may be withheld - Delay until May or even June to reduce the amount over the limit 2. For you: Your plan to start in March sounds optimal given your earnings will be under the annual limit. 3. When applying: Yes, be extremely clear about estimated earnings. There's a specific form (SSA-131) for reporting estimated earnings that you'll complete during the application process. 4. Documentation: Keep detailed records of when you stop working and final paychecks. If vacation payout is substantial, have documentation ready to explain that it's a one-time payment. Remember that once you reach FRA, the earnings test no longer applies, and any benefits withheld previously will gradually be returned through a recalculation of your monthly benefit.

Yes, the recalculation after FRA works like this: SSA tracks how many months of benefits were completely or partially withheld due to the earnings test. Once you reach FRA, they'll recalculate your monthly benefit as if you had claimed later. For example, if your wife has 8 months of benefits fully withheld between claiming at 65 and reaching her FRA, when she reaches FRA, her monthly benefit will be increased as if she had claimed 8 months later than she actually did. This adjustment is permanent and continues for the rest of her life. This is why the earnings test isn't actually a "penalty" in the long run - it's more like a forced delay of benefits that you eventually recoup after FRA. Regarding your decision to have your wife delay until May - that sounds like a reasonable approach that balances immediate income needs with minimizing withholding complications.