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Maximize Social Security Benefits When You Retire


Planning an early retirement? 415 Group Manager Nathanial Arps, CPA, MSA, shares his insight on collecting your full social security benefits and protecting your retirement savings:


It’s never too early to start thinking about retirement. But if you plan to retire before you’ve reached your full retirement age — which is set by the IRS — and you draw from social security while earning income, you’re going to get penalized on your benefits.

We tend to see this with business owners as they’re transitioning ownership. Some owners sell the business to an outside party, while others pass the business down to the next generation. If they decide to keep it in the family, it is often difficult for them to completely severe ties with a business that they’ve worked hard to build. They want to continue to be involved and earn income.

For those who decide to retire before they’ve reached their full retirement age, they have several options to reduce their earned income, whether it’s through deferring compensation until after reaching your full retirement age, creating a self-employment loss to offset excess self-employment income, incorporating sole proprietorships or by shifting income to others through a partnership (i.e. spouse or minor children).

If you’re considering an early retirement, it’s important to speak with a tax professional first. At 415 Group, we help our clients review their assets and personal balance sheet to identify income and potential liabilities. We’ll help you determine how much money you’ll need in retirement to live comfortably. We take the time to examine everyone’s personal situation and guide them through their best options, so they don’t miss out on collecting the full social security benefits they’ve worked hard to earn.

Get the most from Social Security. Younger retirees face a harsh penalty for working part-time. For every $2 earned over $17,040 in 2018 (up from $16,920 in 2017), you lose $1 in Social Security benefits. In the year you reach full retirement age, a higher earnings threshold applies. Your benefits will be reduced by $1 for every $3 of earnings only when earnings exceed $45,360 in 2018 if you reach full retirement age (up from $44,880 for 2017).

Road to Retirement

How long before you can collect full benefits? The SSA has prepared a chart to tell you when you reach full retirement age ... provided, of course, nothing changes:

Year of Birth

Retirement Age to Receive Full Benefits

1937 or earlier



65 and 2 months


65 and 4 months


65 and 6 months


65 and 8 months


65 and 10 months




66 and 2 months


66 and 4 months


66 and 6 months


66 and 8 months


66 and 10 months

1960 and later


After you reach full retirement age, you can earn unlimited amounts and still qualify for full Social Security benefits. (See the right-hand chart to determine what "full retirement age" means for you.)

However, that's only earned income. You can have unlimited unearned income from sources like retirement plans, pensions, annuities, interest, dividends and capital gains without losing any Social Security benefits.

This "Social Security Earnings Test" only applies to people below the normal retirement age.

With some advance planning, you might be able to reduce earned income and make up the shortfall with unearned income with a deferred compensation plan. That is, you receive money that you earn one year in a later year, perhaps in retirement.

For income tax purposes, taxes are due when money is received. For Social Security purposes, though, deferred compensation is counted when it's earned -- not when it's received. So any money you receive from a deferred compensation plan while you're between age 62 and your full retirement age doesn't count against Social Security retirement benefits. In other words, you can defer compensation from ages 55 to 61 and receive that money while you're between 62 and full retirement age.

To do this, the details of your deferred compensation plan should be recorded in the corporate minutes for your company if you're an owner or part owner. You should also include the appropriate reasons. For example, "the company needs cash now, for expansion purposes, so current compensation is being deferred."

Then, when you decide to semi-retire, you can work just enough to earn the allowable amount for that year. (The 2018 allowed amount of $17,040 will generally increase annually.) This way, you receive full benefits from Social Security.

In addition to Social Security and deferred compensation, your income can be supplemented by retirement plan payouts and perhaps the sale of company stock shares to your company. You may also have an expense account that can be used as a part-time employee to help offset expenses.

All of these methods help preserve your Social Security benefits and retirement dollars. Your tax advisor can provide more information.

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