Larry, I plan to retire at the end of the year (12/31/2019) and start drawing social security in January. I will be 64 in November 2019, so I will be subject to earnings limit next year. My question is - will my earnings limit be tested monthly or yearly? I would like to work on a contract basis, so I would earn more than a monthly limit in a given month, but will keep my earnings under the yearly limit. Thanks

Hi,

Either of the 2 Social Security retirement tests (i.e. annual: https://www.ssa.gov/planners/retire/whileworking.html, or monthly: https://www.ssa.gov/planners/retire/rule.html) could be used in your first year of entitlement to benefits, and you don't necessarily need to decide in advance which test to use. Assuming that your first month of benefit entitlement is in 2020, at the end of that year Social Security will apply whichever test is most advantageous for you.

If you earn less than the 2020 annual earnings test exempt amount, which in 2019 is $17,040, Social Security will use that test since no benefit withholding would then be necessary regardless of how much you work and earn in each month. But, if you earn more than the 2020 annual earnings test exempt amount then you will need to furnish Social Security with a monthly breakdown of your work.

If your only work in 2020 will be self-employment rather than for wages, then the monthly test will be based on the number of hours you devote to your trade or business in each month rather than your monthly income (https://secure.ssa.gov/apps10/poms.nsf/lnx/0302505065). Unless you're involved in a highly skilled or highly compensated trade such as a medical doctor, anything less than 45 hours devoted to a trade or business in a month is considered as a non-service month. And, regardless of your annual earnings you could be paid in your first year of benefit entitlement for any non-service month. Again, though, the number of hours that you devote to your trade or business will be irrelevant if your net self-employment earnings for the year are below the annual earnings test exempt amount. You don't need to qualify under both tests, just one or the other.

Before applying for benefits, though, you should strongly consider using our software (https://maximizemysocialsecurity.com/purchase) to explore and compare your filing options in order to determine the optimal strategy for claiming your benefits.

Best, Jerry