• Chris Stein, CFP®

Question on the Earnings Test in the Grace Year

We received the following question on the Social Securyt earnings test last week:

“I turned 65 on July 8 of 2017. Retired from my job and applied for social security benefits since I was no longer working and earning income. They told me the amount of earnings up to the point I retired and applied for social security would not affect my monthly benefit due to the first year earnings test for the first year your retire and stop working. Now I get a letter stating they are reducing my monthly benefit amount for 2017 and 2018 due to what I earned in the months leading up to retirement. I thought if I stopped working that I was not going to be penalized for what I had earned before applying for SS benefits?”

Claiming Your Grace Year

It sounds like somehow in your application process the fact that you wanted to claim your “grace year” did not make it into the system.  Normally the earnings test is applied on an annual basis.  This means for people like yourself who earned income in the beginning of the year you may run afoul of the earnings test, which in 2017 kicked in at $16,920.

However there is a special election you can make in the first year you claim social security called the “grace year.”  When you request the grace year the Social Security Administration (SSA) will apply the earnings test on a monthly basis instead.  This means they will apply the $16,920 limit as $1,410 per month.  Once you are receiving your benefit you will not be subject to any earnings test effects as long as you have less than $1,410 in those months.  This rule is meant for your specific case.  You were originally correct in thinking that once you retired you can claim your social security without it being reduced by the earnings test as long as you remain retired.

Immediately Contact the SSA

You should immediately contact the SSA and notify them you want to request 2017 be treated as your “grace year” and have them recalculate your benefits.  If they reduce your benefits inappropriately before fixing the problem they will make it up to you with a future lump sum check.

For additional info, please use the play button below.


Podcast: Play in new window | Download

Subscribe: Android | RSS

3 views0 comments

Recent Posts

See All

Jim's best friend Mosby

  • Facebook
  • Twitter

Check out the background of firms and investment professionals on FINRA’s BrokerCheck.

Jim Saulnier and Associates | 970-530-0556 | 506 East Mulberry Street, Fort Collins, Colorado 80524
© 2020 Jim Saulnier, LLC. All rights reserved.

Ed Slott Advisor recognition requires an advisor to be well versed on the rules and regulations regarding IRAs.
The advisor must attend two live training sessions and pass two written exams annually to remain in the program.

Jim Saulnier & Associates, LLC ("RIA Firm") is a registered investment adviser located in Fort Collins, CO. Jim Saulnier & Associates, LLC may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Current registered states: CA, CO, PA, TX, WA, IL.

Insurance products and services are offered and sold through James H. Saulnier, a Colorado licensed insurance producer, only in those states in which he is reciprocally licensed or qualifies for an exemption or exclusion from licensing requirements. Current reciprocal insurance licensing in these states: AZ, CA, CN, FL, HI, IA, MA, MD, NY, PA, SC, TN, TX, VA, WA, WI, WY.