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Welcome to “Social Security Q&A.” You ask a Social Security question, and our guest expert provides the answer.

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This week’s question is from Bonnie:

Is there a way to earn money after you start collecting Social Security that does not reduce your Social Security check? I took my Social Security early, and now they dock me for earning too much. It is difficult to live on what I make, even with the small amount of Social Security retirement I am receiving. I heard that there are some types of income that you won’t be docked for, such as income from a rental property. Is this true?

When working can cost you

Bonnie, I’m sure there are many people in your situation. With a small Social Security check, it can be hard to get by without continuing to work. But if you earn more than the earnings limit of $17,040 ($17,640 in 2019), and you have not reached full retirement age, Social Security will reduce the size of your check. (Full retirement age depends on when you were born and can vary between ages 66 and 67.)

Social Security will reduce your benefit by $1 for every $2 you earn over the limit until you are within one year of your full retirement age. After that, the reduction is $1 for every $3 you earn. Once you reach full retirement age, you can earn as much as you want, and there is no reduction in your benefit.

It’s not as bad as it sounds

Many people don’t realize that if your check is reduced because of your earnings when you start claiming early, you’ll get an increase in your benefit when you reach full retirement age. The increase varies depending on the size of the penalties you paid. In other words, the money is not lost. You’ll get it back in the future, provided you live at least into your 80s.

The formula for calculating the higher benefit at full retirement age is a bit complicated, but the bottom line is that you may get all your money back — and, perhaps, even more. As with so many aspects of Social Security, it all depends on how long you live. For people who are concerned about the earnings limit, my advice is to ignore it when you decide whether or not to work. Let other factors determine your work choices. If you work more, you will have higher income today, and your Social Security benefits will be higher in the future.

Bonnie, your question also asked about income that is not included in the calculation of the earnings limit. The only income that is included in the calculation is earnings from work. Think of it this way: If you pay Social Security taxes on the income, then it is included in the calculation. If you do not pay Social Security taxes on the income, then it is not included. (An exception is that some people working for state governments do not pay Social Security taxes on their wage incomes. This income is included in the calculation.)

So, any interest, dividend, rental or other income that is not taxed by Social Security is not included in the calculation.

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The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.

About me

I hold a doctorate in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. I now do the same at Gallaudet University.

In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

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Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the Social Security Administration alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.

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