Question: I'm retiring before the end of the year at age 64. My accountant says I've earned too much salary this year to receive any Social Security benefits. I thought the earnings test was eliminated years ago. If not, is there anything I can do now? Or do I have to work longer? — J.M.B., Boise, Idaho
Answer: It's a common misconception. The "earnings test" for Social Security benefits was NOT repealed for all employees when the rules changed in 2000. Only those who have reached full retirement age are completely exempt from the earnings test.
For 2005, early retirees between ages 62 and 65 lose $1 of benefit for every $2 above the $12,000 earnings limit (the figure is adjusted annually for inflation). If you've been working full time this year, you're probably way beyond the $12,000 limit.
But take note: If you start receiving benefits in a month other than January, the earnings test applies on a monthly basis for the first year of benefits.
Example: Let's say you begin receiving benefits in October after earning $75,000 during the first ninth months of the year. Your earnings would not be reduced (even though you're well over the annual limit) if your earnings for each month after October are less than the monthly amount ($1,000 per month for 2005).
Even better: The earnings test is even more liberal in the year you reach full retirement age. The annual earnings limit of $31,800 (for 2005) only applies to earnings during the months before you reach full retirement age. Furthermore, any benefit reduction is $1 for every $3 over the limit, not $2.
As a result, you don't have much incentive to delay retirement, unless you want to receive your full monthly benefits at your full retirement age.