Income That Won't Affect Your Social Security Payment

There is a lot to know about your Social Security benefits. Perhaps most importantly, understanding how your benefits can be seriously affected by any income you receive while collecting Social Security can be crucial. While the age at which you begin collecting Social Security can also lower your benefits amount, misunderstanding the impact of your income is one of several mistakes that could actually cost you your Social Security benefits altogether. If you are collecting benefits before your full retirement age, then earning anything over $23,400 per year can significantly impact your Social Security. The same goes for individuals at full retirement age earning more than $25,000, or married couples earning more than $32,000.

However, the good news is that there are specific income sources that won't affect your benefits – even before your full retirement age. Certain retirement funds, accounts, and even interest payments can not only provide a financial cushion for you in later years, but also allow you to avoid being penalized by the Social Security Administration for earning too much income.

While you might wonder what happened to pensions, there are still a few lucky Americans out there fortunate enough to have a retirement pension. However, you might be concerned about how your pension income could affect your Social Security benefits. The good news is that if you receive a pension from a former employer, that income is not considered earnings as far as Social Security is concerned. In other words, you can receive your full benefit and your pension.

However, there's one caveat here. If you receive a government pension from local, state, or federal employment that you didn't pay Social Security taxes on, your Social Security benefits could be lowered by as much as two-thirds of your government pension. For example, if your government pension is $2,400 per month, Social Security would deduct $1,600 from whatever your monthly benefits amount is. This could be a problem if your deduction is more than your Social Security benefit. However, if you paid taxes toward Social Security at your government job, or you were receiving your spouse's benefits before April 1, 2004, your Social Security benefits won't be reduced.

After learning how to open an IRA, the next thing you should learn is how to make that IRA work for you in retirement — particularly as it relates to Social Security. Obviously, an IRA can increase your income in retirement, and since up to 85% of your Social Security benefits can be subject to federal income taxes, you might be concerned about your traditional IRA distributions lowering your monthly Social Security benefits. However, this is when it pays to understand exactly when you pay taxes on Social Security income.

It's important to realize that IRA distributions are not counted as earned income. However, if they raise your annual gross income beyond your untaxed threshold, your Social Security benefits could be taxed. If this is the case you can always consider deferring your IRA distributions – which has the added perk of giving your retirement income more time to grow. So while there are plenty of reasons people take their Social Security early, it doesn't mean you need to withdraw your IRA early.

If you started saving for retirement at the right age, and you were able to put away a respectable retirement savings amount, you might feel frustrated with the possibility that you could then lose your Social Security benefits as a result. Fortunately, any earnings from stocks and bonds won't be counted toward your individual income threshold. This includes dividends, interest, and even capital gains. That means you can confidently invest in your retirement without worrying about the impact of your success on your Social Security benefits.

Another form of passive income that won't affect your Social Security is real estate. As long as it's not your primary form of employment, rental income won't impact your Social Security since it isn't counted toward earnings. Also, getting an inheritance, receiving money as a gift, and certain benefits related to military service also won't reduce your Social Security benefit.