Welcome to the Bowman financial strategies, Retirement Made Simple series. Your host is Erik Bowman, retirement income certified professional and certificate holder of the national social security association.

Today we are going to be talking about working while you're taking social security benefits. It's very important to understand the rules, because if you file for social security benefits prior to full retirement age, and you're working and earning meaningful income there is a chance that you could have to pay back significant money to the social security administration. And because unwinding any filing decision that you've already made with the social security administration is extremely limited and difficult to do, the better bet is to just be well-informed and make the best decision possible and get it right the first time. So hopefully today's information is going to help you understand whether or not it might make sense for you, or not, to take social security benefits prior to FRA and work at the same time. 

So, I've mentioned FRA a couple of times, full retirement age is determined by your year of birth. And as it relates to working full retirement age is also a milestone; and it's a milestone that changes the rules when it comes to working and social security benefits. So, for example, if we were to break everybody down into one of three potential scenarios and scenario one, let's talk about somebody who has not reached FRA and will not reach FRA in the current year, but it will be a subsequent year. In that case, if you are filed for social security benefits and you're working, and you make over $18,240, you will pay back $1 for every $2 earned over that limit. And that can be substantial. So why don't we go over a brief example and see if we can't clarify what I mean by that $1 for every $2 earned.

Let's go over a brief example. Imagine you're 64 years old, which means you're not at full retirement age, but you are drawing $24,000 a year in social security benefits and you have $60,000 in earnings. The first thing we do is subtract that $18,240 threshold from your earnings, which leaves us $41,760. Now we're going to apply the formula that will give us the $1 for every $2 earned reduction. And that shows that you would have to pay back $20,880 of your $24,000 in social security benefits. That is 87% of your benefits and worse., you are going to have a smaller social security check for the remainder of retirement because you decided to take social security early.

Scenario two is somebody who's going to enter into FRA this year, so in the current year, you're going to reach FRA based on that chart we looked at early on. Now up until your birthday, you can earn $48,600 and not have to pay anything back. However, for everything you earn over the $48,600, you're going to pay back $1 for every $3 earned. But keep in mind, and this is actually scenario three, that once you reach FRA, you now can work and make as much money as you want through earned income and you won't have to pay back any of your social security benefits. So, keep that in mind that there are some strategies where people might consider part time, work for a while and then increase their potential for income. Once they hit full retirement age, you know, it's going to be unique for everybody, but suffice to say, you can see that these rules are extremely important to know if your monthly income is lower than you expected because you made a poor social security filing decision it could really, really have a devastating effect on your retirement plan.

In addition, on the bright side, if it makes sense for you to maybe work part time prior to FRA and draw those social security benefits with a knowledge of that annual income threshold, which does change every year, you can manage your income to just below that amount, still work part time, and get the benefit of both income streams without any reductions. 

I hope that today's discussion helped you. I hope you now understand the key components of working and filing for social security benefits. If you're watching this video on our website, please explore. There are many, many other videos on important topics relating to social security and other retirement income topics. If you're watching this on YouTube, please subscribe to our channel and please like this video so that we can continue to bring you really relevant content to help you make better informed decisions for your retirement. Thanks for joining me today.

To watch other webinars go to Bowmanfinancialstrategies.com and learn about topics like social security, maximization, Roth conversions, and tax efficient distribution strategies in retirement.