Sandra Reed’s Life Care Planning: Seeking Social Security retirement rules for self-employed? That’s semi-classified information.

Attorney Sandra W. Reed answers your life planning questions.

Attorney Sandra W. Reed answers

your life planning questions.

Wally Webster is a graphics designer who does business as WebGraphics, contracting for services with individuals and companies. He prices projects are either by the job or by-the-hour. He has no employees. Wally recently turned 62 and has been considering taking Social Security retirement benefits while working part-time.

Wally found the Social Security site “ssa.gov” online. He read the booklet, “What You Need to Know When You Get Retirement or Survivors Benefits” several times. He paid especial attention to the segment called “Working and Getting Social Security at the Same Time.”

Early Retirement versus Full Retirement; Working While Retired

Wally learned that, based upon his birthdate in 1948, he would reach full retirement age at 66 and that if he took SS retirement benefits from age 62, he would receive a smaller monthly amount than if he waited until age 66. He read that between age 62 and 66, he could take benefits in 2013 and still work, earning up to, but not exceeding $15,150 without incurring a penalty.

Wally also learned:  (1) for every $2 an early retiree earns over the allowed amount, Social Security deducts $1 from monthly benefits; (2) a worker who reaches full retirement age in 2013 can earn up to $40,080 that year without any reduction in benefits and the reduction would be $1 for every $3 earned over the limit; and (3) after the first year of retirement, a retiree can earn an unlimited amount without incurring a penalty.

Wally thought he knew exactly where he stood. He believed he could calculate with accuracy how working would affect his benefits.

Special Rules for Working Retiree in First Year of Retirement

Then Wally read the section labeled “A special monthly rule” that outlined how Social Security deals with a worker who begins benefits in the middle of a year, after having already earned more than the allowed limit.  In 2013, that person would continue to receive benefits in any month in which earnings were no more than $1,260, regardless of the yearly earnings.

For example, a worker who had earned $40,000 through July begins taking SS benefits in August but takes a part-time job making $1,000 a month. The retiree will receive his normal SS benefits for the months of August through December because the $1,000 earned is less than the earnings cap.  The next year only the regular annual limits will apply because the retiree will be beyond the first year of retirement.

Special Rules for the Self-Employed

Once again, that seemed pretty clear – until Wally read, “If you are self-employed, the monthly limit is based upon whether you perform substantial services in your business.  In general, if you work more than 45 hours a month in self-employment, you will not get benefits for that month.”

It seemed to Wally that he fit under the self-employed category, so he would be subject to the specific monthly rule that limited the number of hours he could work rather than the amount he could make in that month. It also seemed from his online reading of the 2013 booklet that even for the self-employed, dollar, not hourly limits, would apply after the first year of retirement

Ambiguity and Confusion in Interpretation of the Rules

Wally had a 2012 booklet he had received in the mail that seemed to indicate the limitation on hours worked per month might apply to self-employed individuals throughout retirement, calling the 2013 interpretation into question. He needed to know which was correct. Had the rules changed since 2012? He called the toll-free number 1-800-772-1213, which was designated in the booklet as the source for obtaining answers to specific questions. Although Wally had to wait for more than 30 minutes to get a person on the line, he expected clarification as his pay-off.

Not so fast.

The Social Security employee answering told Wally that she could not answer his question because there is no general rule for the self-employed. He would have to contact his local Social Security office because the rules for self-employed persons depend upon the specific facts of that individual retiree’s situation. When Wally explained that he wasn’t asking for specific information regarding his individual situation, just an interpretation of the booklet’s wording, she said she understood perfectly what he was asking. She emphatically insisted that she had been instructed not to give out any information on self-employment questions. Implying that she feared for her job if she did otherwise, she was not about to go against these instructions.

Wally hung up, puzzled and frustrated. How could it be that the main source SSA designated to answer questions could not explain its own publication?

When Wally called his local office, the SSA employee who answered also refused to answer his question. “It’s not that simple for self-employed,” she said. “File and we will look at your tax returns.” When he responded that he needed an answer to determine whether or not to apply for benefits in the current year, she transferred him to her supervisor. A voice mail answered, requiring him to leave a message and to wait at least two working days to receive a response phone call.

Lesson and Caveat for the Self-Employed

The lesson:  The self-employed seeking SS retirement benefits should expect SSA to treat information sought as semi-classified. Anticipate a more complicated application process than that afforded your friends who are wage earning employees.

The caveat:  Stay away from sources or services who offer assistance with questions regarding retirement benefits for a fee.  It may be frustrating and time-consuming to obtain but all information necessary is provided by SSA for free.  This caveat applies not only to the self-employed, but to all workers.

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm, whose principal office is located in Fort Worth. She lives and practices in Somervell County. If you have questions or concerns, please contact her by email at swreed2@yahoo.com or by phone at 254-797-0211.

 

 

2 Responses to Sandra Reed’s Life Care Planning: Seeking Social Security retirement rules for self-employed? That’s semi-classified information.

  1. Suzanne Gentling Reply

    August 19, 2013 at 8:28 pm

    Thank you for this informative article. I am surprised to learn that earnings for the self-employed who are receiving SS benefits will be calculated by some semi-classified equation. Just how is a mere citizen supposed to plan or anticipate one’s tax obligation?

    To describe our existing tax code as embarrassing is the nicest term I can think of. There is no excuse for having a tax system that apparently no one, including the ‘experts’, really understands.

    • Kathryn Reply

      September 7, 2013 at 9:07 am

      Thanks, Suzanne. Sorry to be late posting this, too. I’ve been swamped with a conference in Washington, D.C., and the start of the fall semester at Tarleton. We appreciate your reading the Current and commenting.

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