Hello, and welcome back to Powering Your Retirement Radio. I am Dan Leonard, your host, and a PG&E Retirement Specialist. This week, we will talk about the Social Security clawback, which happens when you earn money and draw Social Security benefits before Full Retirement Age.
What is a PG&E Retirement Specialist?
I receive a question, “What is a PG&E Retirement Specialist?”
A PG&E Retirement Specialist focuses on helping PG&E employees plan for and retire from PG&E. Why do you need a PG&E Retirement Specialist? Think about going to the Doctor; any competent Doctor can identify many different ailments. Likewise, most competent advisors can advise you on retirement. If you require a specialist, you likely do not want your General Practitioner helping you with major surgery. Instead, you want them to refer you to a Specialist. You can get good advice from many financial advisors if you work with a specialist. However, they have expertise in that particular area. In short, it is easier for a specialist to offer general advice than for a generalist to offer specialized advice. For instance, understanding the cost of your medical insurance. A PG&E Retirement Specialist will know to ask about your Retiree Medical Savings Account and know how it works, and a generalist may ask if you know what your health care will cost in retirement. Hopefully, that helps to clear that up.
Social Security clawback
Let’s move on to today’s topic of the Social Security clawback, which happens when you earn money while collecting Social Security. It is an issue until you reach full retirement age. Until the year you reach FRA, Social Security will claw back $1 for every $2’s you earn above the earnings cap, currently $18,960 in 2021, and it is adjusted annually based on inflation. When you reach FRA, the limit is raised to $50,520.
Most people will avoid working to avoid the Social Security clawback. However, there are a few options. If you decide to go back to work and it has been less than a year, you can take advantage of the one-time do-over and pay back all money paid out on your benefit, which is like it never happened. You can also keep collecting Social Security and limit your income to avoid the Social Security clawback. Neither of these two options is all that popular. Option three is to keep working, earn whatever you can, and know that the Social Security clawback will be calculated over the earnings limit. The key is they are clawed back, not forfeited.
NOT A FORFEITURE
What happens is the money that is clawed back is kept track of. When you reach your full retirement age, Social Security will automatically recalculate your benefits and adjust your payment to redistribute the clawed-back money over your lifetime, affective raising your benefits. For instance, let’s take round numbers to illustrate the concept. Your experience would be different. Let’s say you have $30,000 clawed back as part of the Social Security clawback and your remaining life expectance happened to be 30 years. Your benefit would increase by $1,000 a year. That is oversimplified because interest and other things go into the calculation, but it is the basic idea. You have to consider that some people will like past live expectations and others won’t. In short, unless you know when you are going to die, you can’t know if it is this calculation will work out in your favor or not.
In the last episode, I said that most people take the money when they want it, not necessarily when needed. If you decided to collect Social Security early, but have an excellent opportunity to earn income, don’t turn it down because there is a clawback on your Social Security. Be aware you will have a Social Security clawback and plan for it. You can be proactive and let Social Security know.
You will get the money back but once your benefit is recalculated at Full Retirement Age. So while many people have strong feelings about the Social Security clawback, they know that it is only a clawback and a forfeiture.
I hope that helps clear up the Social Security clawback and the earning limit for you. As always, I welcome your questions, and you are welcome to reach out if you want to talk in person on my office line, too. 924-726-4015.