Some people who retire in mid-year have already earned more than their yearly earnings limit. That is why we have a special rule that applies to earnings for one year, usually the first year of retirement.

The special rule lets us pay a full Social Security check for any whole month we consider you retired, regardless of your yearly earnings. If you will

  • be under full retirement age for all of 2014, you are considered retired in any month that your earnings are $1,290 or less and you did not perform substantial services in self employment.

  • reach full retirement age in 2014, you are considered retired in any month that your earnings are $3,450 or less and you did not perform substantial services in self employment.

"Substantial services in self-employment" means that you devote more than 45 hours a month to the business or between 15 and 45 hours to a business in a highly skilled occupation.

Example: John Smith retires at age 62 on June 30, 2014. He earned $37,000 before he retired.

On October 5th, John starts his own business. He works at least 15 hours a week for the rest of the year and earns an additional $3,000 after expenses. His total earnings for 2013 are $40,000.

Although his earnings for the year substantially exceed the 2014 annual limit ($15,480), John will receive a Social Security payment for July, August and September. This is because he was not self-employed and his earnings in those three months are $1,290 or less per month, the limit for people younger than full retirement age.

John will not receive benefits for October, November or December 2014 because he worked in his business over 45 hours per month in all three months.

Beginning in 2015, the deductions are based solely on John's annual earnings limit.