Often people who retire in mid-year have already earned more than Social Security's annual earnings limit that applies to those who collect benefits before their full retirement age.
Normally, people who collect Social Security benefits before their full retirement age, currently 66, must forfeit $1 in benefits for every $2 earned over a prescribed limit. For this year, the earnings cap is $15,120.
That is why there is a special one-year rule that applies to earnings during the first year of retirement. Under this rule, an individual can get a full Social Security check for any whole month he or she is retired, regardless of yearly earnings prior to claiming benefits.
I received an e-mail from Kathie Beaupre-Vietor in Michigan this morning with a question about this very subject. She is 64 and needs to resign from her job with American Eagle Airlines for medical reasons.
Ms. Beaupre-Vietor's financial adviser urged her to contact me with her question.
"I have talked to a Social Security representative recently and he told me that because I have already earned over $15,120 this year, the government will withhold benefits based on my earnings since Jan. 1 if I apply for benefits this month," she wrote in an e-mail to me.
"It does not make sense to me that the government would use my earnings from Jan. 1 since I have not been receiving Social Security benefits for that period," Ms. Beaupre-Vietor wrote. "If we are penalized for working more than half of the year, why would anyone retire at any time except the first quarter?"
Great question. And it seems that Ms. Beaupre-Vietor got an incorrect answer from the Social Security representative.
In 2013, a person who is under full retirement age for the entire year is considered retired if his or her monthly earnings are $1,260 or less, according to Social Security's publication "How Work Affects Your Benefits."
The monthly limit is 1/12 of the 2013 annual earnings limit of $15,120.
So as long as Ms. Beaupre-Vietor's monthly earnings are below that level for the rest of the year, she should receive her full retirement checks, even though her earnings through July exceeded the annual earnings limit.
However, if she earns more than $1,260 for any month during the remainder of the year after she begins receiving retirement benefits, she wouldn't receive a Social Security check for that month.
As Ms. Beaupre-Vietor doesn't intend to continue working, this won't be a problem. The earnings restriction applies only to income from a job, not from a pension, investments or other source of income.
Beginning in 2014, the yearly (rather than monthly) earnings restrictions limits would apply. The annual earnings limit, currently $15,120, usually is increased each year to reflect inflation.
Because she is claiming benefits two years early, Ms. Beaupre-Vietor will receive about 86% of her retirement benefit, compared with the 100% she would have collected if she had waited until her full retirement age of 66 to collect.
However, because she is retiring for medical reasons, I suggested that she apply for Social Security disability benefits at the same time. Her claim to collect retirement benefits will be automatic.
Not so for disability applications which are reviewed on a case-by-case basis and adhere to strict medical guidelines. But if eventually approved for disability benefits, Ms. Beaupre-Vietor would be entitled to her full retirement benefit, even if she was younger than 66.