Working and Social Security

The rules are straightforward and spelled out clearly on Social Security's website, but here's the short course:

If you are between 62 and 66, Social Security will deduct $1 from your benefit payments for every $2 you earn above the annual limit, which in 2011 is $14,160.
The year you turn 66, the cap is higher. In 2011, you can earn a total of $37,680 with Social Security deducting $1 for every $3 you earn above that.

Pay attention to the rules because payback can be tough. If you work and collect simultaneously, Social Security will continue to pay you while you work, then after you've filed your income taxes in April of the next year, it will send you a letter saying you made too much money and it is taking back what it overpaid based on the earnings limit.

People who have had this retirement planning scenario happen to them warn that this can put you in a real bind if you spent the money you earned as well as the money you simultaneously collected from Social Security. Both you and your spouse -- if that person is getting benefits based on yours -- could go for several months without getting a Social Security check.

Does it make sense to take a job if you're younger than full retirement age and already taking Social Security? Yes, because if Social Security suspends your benefit, it will recalculate it as if you hadn't claimed. So when you quit work or reach full retirement age, you'll get a payment that reflects the age at which you're currently claiming (minus the time for which you already received benefits) -- and that can raise your payment substantially.