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Retirement Planning


Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


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friend2u  
#1 Posted : Saturday, August 15, 2009 10:53:49 AM(UTC)
friend2u

Rank: Advisor

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Joined: 3/3/2002(UTC)
Posts: 143

Under the special rule for retirement it sounds as if someone retiring mid year would
either have one month where they would receive a full benefit payment or perhaps the
remainder of the year would be at full payment. The way it is worded I cannot tell because
it could be taken both ways. This would be true of course as long as the beneficiaries
earnings do not exceed 1180 monthly. I am referring to someone 62 years of age. Can you
tell me whether it is one month full only or is it the remainder of the year?

Here is the rule word for word.

Special rule for the first year you retire

Sometimes people who retire in mid-year already have earned more than the yearly earnings
limit. That is why there is a special rule that applies to earnings for one year, usually
the first year of retirement. Under this rule, you can get a full Social Security check
for any whole month you are retired, regardless of your yearly earnings.

In 2009, a person under full retirement age for the entire year is considered retired if
monthly earnings are $1,180 or less. For example, John Smith retires at age 62 on October
30, 2009. He will make $45,000 through October.

He takes a part-time job beginning in November earning $500 per month. Although his
earnings for the year substantially exceed the 2009 annual limit ($14,160), he will
receive a Social Security payment for November and December. This is because his earnings
in those months are $1,180 or less, the monthly limit for people younger than full
retirement age. If Mr. Smith earns more than $1,180 in either of those months (November or
December), he will not receive a benefit for that month. Beginning in 2010, only the
yearly limits will apply to him.

Also, if you are self-employed, we consider how much work you do in your business to
determine whether you are retired. One way is by looking at the amount of time that you
spend working. In general, if you work more than 45 hours a month in self-employment, you
are not retired; if you work less than 15 hours a month, you are retired. If you work
between 15 and 45 hours a month, you will not be considered retired if it is in a job that
requires a lot of skill or you are managing a sizable business.
Warrenlm  
#2 Posted : Saturday, August 15, 2009 7:27:11 PM(UTC)
Warrenlm

Rank: Senior Member

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Joined: 11/5/2006(UTC)
Posts: 487

quote:
Originally posted by friend2u:
Under the special rule for retirement it sounds as if someone retiring mid year would
either have one month where they would receive a full benefit payment or perhaps the
remainder of the year would be at full payment. The way it is worded I cannot tell because
it could be taken both ways. This would be true of course as long as the beneficiaries
earnings do not exceed 1180 monthly. I am referring to someone 62 years of age. Can you
tell me whether it is one month full only or is it the remainder of the year?
(emphasis added)

Remainder of the year. I've been taking this rule to mean we get a "full" (unreduced for earnings but reduced for age) for any month we don't exceed the maximum earnings. That would be one month or more, up to the year. This is to recognize that earnings for the part of the year worked before retiring should not be used to disqualify someone from benefits once retired. I'm taking it that if we retire/retire, say, 31 July, we can file for benefits effective 1 August and get annuity and benefit in the bank nominally 1 September.
overtaxed  
#3 Posted : Sunday, August 23, 2009 12:55:54 AM(UTC)
overtaxed

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I am under the FRA for the entire year of 2009.

I filed for benefits starting Jan 1, 2009. I worked for three months before retiring in March, 2009, with earnings under the annual limit but over the monthly limit for Jan, Feb, and March 09.

I do not require use of the "first year retirement rule" since I didn't have any earnings prior to requesting my benefits to begin on Jan 1, 2009.

I will not have any additional income for the remainder of 2009.

Will I be penalized for having income above the monthly earnings limit but under the annual limits?

If I am subject to this "penalty" why is this different than anyone earning under the annual limits during any retirement year?

Thanks
hmcann  
#4 Posted : Sunday, August 23, 2009 6:09:21 AM(UTC)
hmcann

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Overtaxed - you will receive benefits for all months of 2009 if you are over age 62 and your earnings do not exceed the annual retirement test amount in 2009. You will not be penalized for months that earnings exceeded the monthly limit.
overtaxed  
#5 Posted : Sunday, August 23, 2009 10:26:07 AM(UTC)
overtaxed

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Posts: 4

Thanks for the response.

My reading of the SS website refers to the situation where an individual retires mid-year and has earnings in excess of the annual limit at the time he begins receiving SS benefits. The SS website gives the impression that a first year rule applies to anyone regardless of the month they begin to receive SS benefits.

The SSA has sent me a questionaire which gives me the impression I may be in trouble since they want to know how much I have earned to date along with a declaration by me of which months I
expect to earn less than the monthly earnings limit. They claimed I told them I would be earning less than the monthly earnings limit after I retired when I applied for benefits. They also informed me of my estimate of earnings for 2009 and wanted to know if my earnings were different than my estimate. They also want to know the exact day I retired from my job in 2009.

They said my response to the quesionaire was stricly voluntary but they would involve other agencies without my permission if I did not respond.

I don't know if this is a "standard" questionaire or if was triggered by the fact I exceeded my monthly earnings estimate from IRS records.

Overtaxed
friend2u  
#6 Posted : Friday, August 28, 2009 10:49:39 AM(UTC)
friend2u

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overtaxed...you said that you filed for SS benefits 01 Jan 2009 but worked 3 months until the end of March 2009. When you filed on Jan 01 2009 did you file for your benefits to start on 01 Apr 2009 or did you collect a check from the SSA while working from 01 Jan - 31 Mar 09? If you were working those 3 months and exceeding the monthly limit while collecting a check from the SSA then my opinion is that you would owe the SSA for the entire amount they paid you for those 3 months. However if you did not start to collect until 01 Apr 2009 everything you earned prior to that date does not count against you in any way. I called the SSA and they said that for the first year I am retired it is only the monthly limitation that I need to be concerned with since all that I had earned prior to receiving benefits did not count against me in any way. I took that to mean that if I had made 10 million dollars before receiving benefits it would not matter.
overtaxed  
#7 Posted : Saturday, August 29, 2009 12:54:40 AM(UTC)
overtaxed

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I did start my benefits on Jan 1. I then worked for three months before retiring.

This is the reply I received when I asked an "expert":

"In the first year of retirement, the monthly earnings test is used unless using the
annual earnings test permits more months of benefits to be paid.

You are entitled to benefits for every month of 2009 if your 2009 annual earnings
stayed below $14,160".

Overtaxed
friend2u  
#8 Posted : Saturday, August 29, 2009 6:22:21 AM(UTC)
friend2u

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Posts: 143

overtaxed...in reading the expert statement it would follow that as long as your first 3 months did not exceed the 14K plus figure then you would be able to keep what they had paid you. If that is true and since you mentioned not working the remainder of 2009 then this is good information and I value it since it may apply to me next year. You did seem a bit nervous about the questions they were asking you, does this experts statement put that to rest?
overtaxed  
#9 Posted : Saturday, August 29, 2009 9:45:36 AM(UTC)
overtaxed

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Posts: 4

The "expert" advice sounds logical to me. I'm expecting to receive some response from the SSA for the questionaire I sent in.

The questionaire I received did get me wondering if I did the right thing considering the questions they posed and reading the SS "explanation" of the first year rule.

The first year rule, in my opinion, is to permit a retiree to disregard earlier current year earnings prior to the starting SS benefit month and it does make sense to apply the monthly test for the remaining months in the first year. A retiree shouldn't be punished in any manner regardless of any monthly earnings provided the total yearly earnings don't exceed the annual limit.

I scoured the SS website looking for a down-to-earth, simple explanation such as I received from the expert to no avail. Perhaps I overlooked it (if it exists).

I also took a quick look at USC 42 for the wording but I'm not an attorney and reading the code quickly puts me to sleep!

Overtaxed



I do feel the "expert" opinion is valid.
Warrenlm  
#10 Posted : Thursday, September 03, 2009 7:57:55 PM(UTC)
Warrenlm

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Posts: 487

Once retired mid-year, when exactly should one file for SS benefits? Assuming immediate age eligibility and no plans to "earn" anything in excess of the maximum monthly earnings limit, the day after retirement? Wait one month?
dhancock1210  
#11 Posted : Wednesday, September 16, 2009 11:32:58 AM(UTC)
dhancock1210

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Posts: 2

Hello all,

In looking for advice on TSP investments I found this question and thought I could clarify and/or verify what you have been talking about in regards to the First Year Rule. I have worked for Social Security (SS) for the last 11 years and I have processed thousands of retirement applications so I guess I could qualify as a so called 'expert'. Smile

First of all, the questionnaire you have mentioned is something we regularly send out to retirees just to make sure nothing has changed since they first filed for retirement. Unfortunately, the form is confusing to many people and they end up completing it incorrectly which could result in SS thinking a person has been overpaid. There is nothing worse than getting a letter from SS telling you that you owe thousands of dollars. But rest assured, if you give SS a call, we will help straighten things out, unless you actually did earn over the allowable limits.

Regarding the yearly and/or monthly earnings limit. If a person does not expect to earn over the $14,160 in 2009, then they will be entitled to SS benefits every month they also meet the other requirements, age, enough credits, etc...

If a person is going to earn more than the $14,160 in 2009, then we look at several things, such as the total of how much they expect to earn, whether or not they are going to totally retire mid year--or at least cut down their work to where they earn less than $1180 per month.

Since I can't cover every individual's situation, these are just some guidelines. I encourage you to contact SS for more info if you still have questions.

If an individual is going to earn over the yearly earnings limit, but they are going to retire effective with a given month, they could file for benefits to begin effective with that month. As long as they don't earn over $1180/mo in each month thereafter, they will be eligible for all months they are retired. Caution should be used when using the monthly earnings limit, be careful you don't go over the $1180 by even $1, or you forfeit the whole check.

Another option, let's say a person is going to earn over the $14,160, and they are not going to 'retire' or reduce their work to below $1180 in any month. Then we could take a look and see if we could still pay them some benefits. Say you were going to work and earn $20,460 for the whole year of 2009, and you came in to talk to us in January of 2009. We could still pay you some benefits even though you were earning over the yearly AND the monthly limits. With the yearly earnings limit, we withhold $1 for every $2 you earn over the $14,160. So if you were going to earn $21,460, we would withhold $3000 in benefits for 2009--$20,460-$14,160/2=$3000

So, if you were eligible for a monthly Social Security benefit of $1500/mo, we would withhold two months and then pay you the rest of the year.

Whether you file for SS benefits with a Claims Representative or online, you tell us your plans and then we tell you what we can do for you.

As far as saying when it is best to start drawing SS benefits--it depends on the individual's circumstances. The old school of thought was to take SS as early as possible but that may not necessarily be the best option. Your SS benefit increases every month you wait, some people think you have to wait until 63rd, 64th, 65th birthday to get the higher benefit, which is not true.

Also, to make things more confusing, the yearly earnings limit increases substantially the year you turn your full retirement age (FRA). A person is still limited on what they can earn but it jumps way up to $37,680 for the months prior to FRA. Once you reach your FRA, there is no earnings limit.

Hope this helps.
Warrenlm  
#12 Posted : Thursday, September 17, 2009 7:02:44 AM(UTC)
Warrenlm

Rank: Senior Member

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Joined: 11/5/2006(UTC)
Posts: 487

Thanks very much for lending your expertise to the MB. As I fill out the online application, I can see why every case has individual situations. I also now see why so many posters were asking in another thread how long it takes to get the payment for annual leave. I assume that counts as "earnings" which over power the max earnings for the month received.
dhancock1210  
#13 Posted : Thursday, September 17, 2009 10:27:44 AM(UTC)
dhancock1210

Rank: Newbie

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Joined: 9/16/2009(UTC)
Posts: 2

Actually, we can count the annual leave in the last month you actually worked.

Check out this link for more information. Scroll down to Federal Annual and Sick Leave


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