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AARP Bulletin

Social Security Mailbox

Will Getting a Pension Lower Your Benefit?

No, but it may make more of your check taxable

En español | Q. I'll turn 62 in a few months and would like to start drawing Social Security. I worked for my employer for 37 years and now receive a pension of about $30,000 a year. Will I lose any of my Social Security because of the pension?

A. No. Generally speaking, a corporate pension or any other form of retirement income — interest from an investment account, for instance — won't affect Social Security benefits. The amount you get is determined by your income history, not by other retirement money you may have coming in.

See also: If I work while receiving benefits, do I still pay FICA taxes?

However, if you continued to hold a paying job, your Social Security could be lowered until you are 66, which is your full retirement age, because there is a Social Security earnings limit. (For 2012, the annual limit is $14,640.) That means if you were to earn more than that figure this year, Social Security would withhold $1 in benefits for every $2 in earnings above the limit.

Fortunately, any benefits that are withheld this way generally will come back to you. When you reach age 66, the earnings limit goes away, and Social Security recalculates your benefits to credit you for payments that were withheld, resulting in a higher monthly benefit going forward. Meanwhile, there's one other thing you should be aware of: your income tax situation. Your $30,000 a year pension is federally taxable income. And because you're getting that money, a portion of your Social Security benefits looks like it will be taxable.

That's because you have to pay federal taxes on benefits if you file as an individual and your income plus non-taxable interest plus half your Social Security benefit add up to more than $25,000. If you and your spouse file a joint return, you'll have to pay taxes on some of your benefit if that figure is more than $32,000.

Indeed, one of the reasons that some people delay taking their Social Security is to postpone the day when they have to pay taxes on their benefits.

Q. My wife is six months older than I am and is considering retiring with reduced benefits at age 62. If she does that, can she claim a spousal benefit when I retire at 66 equal to 50 percent of mine?

A. Sorry, but the answer is no. A basic rule of Social Security is that once a person takes benefits at age 62, his or her payments are forever reduced in the future. When you reach your full retirement age at 66 and take your benefits, your wife can file for a spousal benefit. But her payment, even if it's higher than before, will never reach 50 percent of your benefit.

You may also like: Which state would you most like to live in during retirement?

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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