Social Security surprises. Not the good kind.

stokkete | Deposit Photos

Consider this a cautionary tale.

As y'all know, I retired in mid 2020, several years before reaching my full retirement age. I crunched the numbers and figured I could make it work with Social Security and various investments, plus a part-time job. And it did work -- until I bought a condo and the condo association slapped the owners with a massive, multi-year special assessment. So I went back to work full-time in May of last year. 

Until you reach the year of your full retirement age, Social Security will let you earn a certain amount each year and still keep getting your benefits -- but if you earn more than their max, they'll dock your benefit by $1 for every $2 over the max you earn. The earnings limit in 2023 was $21,240. I knew I was going to make more than that last year, so in May, I sent Social Security a letter letting them know that I was going to make way more than their earnings limit for the year. 

In early November, I got a letter from Social Security that said -- I'm paraphrasing here -- "Oh hai, you are going to make way more than you should have this year, so we are going to stop paying you benefits for four months, starting now."

The face that guy is making up top is an approximation of my reaction. I mean, I went back to work because I needed the money. I'd made plans several months out based on what I thought would be my monthly income -- which was now being cut by about a third. 

It's not so much that they cut back my benefit. I knew they were going to -- that's why I sent them the letter. But what I want y'all to understand is how they do it: There's no monthly payment plan. They just stop paying you 'til they get back what they "overpaid" you. And they give you very little warning.

So how can you avoid this whack upside the head? You have three options:

1. You can wait 'til you reach your full retirement age before you start taking Social Security.
2. If you retire early, you should keep a close eye on your annual earnings to make sure you don't go over the max earnings for the year (it's $22,320 for 2024).
3. You can tell Social Security to stop sending you money for a while. 

There are a couple of ways to accomplish that third option. If you haven't reached full retirement age yet, you can do what's called a withdrawal of benefits. You can only do it within the first twelve months of retiring, and you can only do it once. And there's another catch: You have to pay them back everything they've already paid you. So let's say you retired for six months, then went back to work. You'd have to give Social Security back every penny they'd paid you -- money you had presumably been living off of, so you wouldn't have it to give back. And if the new job doesn't work out, tough bananas -- Social Security won't pay you anything again until you reach full retirement age.

The other way is called suspension of benefits. Basically, you tell Social Security you'd like to stop getting a check from them until you ask them to start paying you again (or until you turn 70). Under this option, you don't have to pay back anything they've already paid you. But the catch is that you have to have reached full retirement age to exercise this option. 

Both of these options reset the year that you started taking benefits, which will mean a bigger monthly payment for you when they do resume. But lawdy, they don't make it easy for you to change your mind.

Anyway, in my situation, option 3 was not an option; I had yet to reach my full retirement age, and it had been more than a year since I first retired. 

I've been using a term that I haven't explained: full retirement age. What is it? Well, it depends on when you were born. For decades, everybody's full retirement age was 65. Then Congress started dinking around with it, raising it to supposedly stave off a shortfall in the Social Security system (I have Opinions, but that would be another post). For me, full retirement age is 66 and a half. (Here's how to figure out yours. The chart is at the top of page 3.)

As for this withholding-part-of-your-benefits business: The rules change when you get to the year in which you will reach full retirement age. Then the amount you can earn that year raises by a lot -- for 2024, it's $59,520 -- and as long as you don't make that much before the month you reach full retirement age, you're golden. Even if you do make that much money that year, the penalty is less harsh; Social Security retains only $1 for every $3 (instead of every $2) you make over the limit.

Also, Social Security swears that once I hit full retirement age, they'll give me back the money they've withheld from me. It's not like they'll send me a fat check all at once, though; instead, they'll use some arcane formula to bump up my monthly benefit. In other words, they'll give it back in convenient monthly installments -- an option they didn't give me when they began withholding my benefits. Hmph.

The good news for me is that this is the last time I'll have to deal with this. I'll reach full retirement age in 2024, and no way I'll make $59,520 in the months before I get there. So soon all this folderol will be behind me. I just need to make it to March, when my benefit payments will resume.

But the moral of the story for you guys is this: If you're going to start taking Social Security before your full retirement age, pay attention to your earnings if you go back to work. 

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One more thing: If you have your Medicare premium taken out of your Social Security check, but Social Security starts withholding your benefits, Medicare won't drop you or suspend you. Social Security will simply take the missed premiums out of your check once they start paying you again. Isn't that a nice change from the way private insurance companies operate?

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These moments of hair-pulling blogginess have been brought to you, as a public service, by Lynne Cantwell. Stay safe!