Today's topic comes from two questions recently received. Together, they address the topic of work and Social Security from very different perspectives.
Maximum earnings
Question: Combining my two jobs, I might earn over the Social Security maximum taxable earnings limit this year. If I do, how will my employers know when to stop withholding SSA payroll tax?
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Howard Kossover
Answer: When you have more than one job in a year, even if receiving Social Security benefits, each employer must withhold SSA taxes, up to the maximum taxable earnings, from your wages without regard to what the other employers may have withheld. If total SSA payroll taxes withheld exceed the yearly maximum, claim a refund when filing your personal income tax with the IRS for that year.
For 2012, the maximum taxable earnings for Social Security covered wages or self-employment is $110,100. Based on increases in average wages, yearly maximum taxable earnings amounts have changed frequently over the years (see www.socialsecurity.gov/planners/maxtax) with changes automatically taking place when there is a cost-of-living adjustment for Social Security benefits. Medicare has no tax base limit.
According to the SSA publication, Fast Facts & Figures about Social Security, 2011, (www.ssa.gov/policy/docs/chartbooks/fast-facts/2011/index. html) of the 157 million workers with earnings in Social Security covered employment in 2010, only about 6 percent had earnings that equaled or exceeded the maximum amount subject to taxes.
Early retirement
Question: I have opportunity to stop working several years before age 62. If I do, will my Social Security retirement benefits be lower than if I continued working?
Answer: Assuming you have worked enough, 40 credits or roughly 10 years, to qualify for SSA retirement whenever you retire, retiring several years before being able to start benefits can definitely result in a lower SSA retirement amount.
Incorrectly, people often think that Social Security retirement is based on only several years of work. Not true. Lifetime earnings are important. In fact, your best 35 years of work are selected, adjusted (indexed) to account for changes in average wages, and then used to compute your amount at full retirement age (FRA) (www.socialsecurity.gov/retire2/agereduction.htm). From this, the benefit amount for your actual age is computed. Since a person's best 35 years are often those immediately before retirement, stopping work several years before starting SSA retirement could result in not replacing past lower earning years with more recent higher ones.
What if you do not have 35 years of work on your record? Zeros are added for as many years needed to get to 35. As with any averaging, adding in zeros will lower average earnings and lower overall benefit amounts.
Use the SSA Retirement Estimator at (www.socialsecurity. gov/estimator) to estimate benefit differences for retirement at different ages, compared to working until at least age 62 or older. The Estimator connects to your actual Social Security earnings record. The automatic, default, estimate assumes you will continue working until starting benefits. For comparison, use "create additional scenarios" to change the age you expect to stop working or amount of future earnings.
This answer just considers your own SSA retirement benefits. A lower retirement benefit amount might not be a concern if you will be eligible for higher benefits on the SSA work record of someone else, such as spousal or survivor benefits.
Congratulations on being able to consider very early retirement. Consider more than just potential SSA benefits. You might be retired for many years. Will your total income provide a comfortable retirement? What are your plans for future activity?
Contact the Social Security Administration in several ways. Visit the SSA website at (www.socialsecurity.gov) for information, retirement planning tools and online retirement and Medicare applications. Call the SSA national toll-free number 800-772-1213 (TTY 800-325-0778) (7 a.m. to 7 p.m.) about your benefits or to make an appointment. Reach the Minot office directly at 866- 415-3193 (9 a.m. to 3:30 p.m.).
Howard I. Kossover is the Social Security Public Affairs Specialist for North Dakota and western Minnesota. Questions of general interest can be sent to him at howard.kossover@ssa.gov. His online articles can be found at (www.socialsecurityinfo.areavoices. com).