How Do Annuities Affect Social Security Retirement Benefits?

Annuities, pension payments and interest income from investments do not impact social security administration (SSA) payments. However, if you are taking your payments before your full retirement age and are also earning income, you may see a reduction in the SSA monthly benefit. Only income from wages, self-employment, etc. is included in this calculation.

Retirees who receive social security benefits may also earn extra money from a part-time job or self employment that can help stretch the government payments and retirement savings

This income can be used to help pay for health care costs, keep up with the cost-of-living and make retirement more enjoyable. Understanding the SSA rules around earned income, investment income, and income from annuity payments is important as you navigate the retirement income labyrinth. Let’s dive into the rules.

Why Annuities Do Not Affect Social Security Benefits

One of the key benefits of annuities is that this product can provide a guaranteed stream of income to supplement SSA payments. This happens when you annuitize a deferred annuity or buy an immediate annuity.

As a refresher, annuities are products sold by life insurance companies that can help you accumulate money (usually paying very competitive interest rates) prior to retirement and create a stream of income in retirement that you cannot outlive. You can even choose what are called survivor benefits so that your annuity payments can continue for your surviving spouse or other beneficiary.

Annuities can be a solid choice as a supplement to SAA payments even when your nest egg isn’t very large.

As you are putting together the puzzle pieces of retirement planning, and decide to take both annuity income and SSA income at the same time, you may be worried that your SSA monthly payments will be reduced by your annuity benefit.

It is important to note that when the SSA determines whether to reduce your benefits, they only pay attention to income earned from working and only count that income if you start taking SSA benefits before reaching full retirement age.

Other types of income, including annuity payments, defined benefit pension plans, dividends, interest and capital gains from investments, don’t reduce your SSA income because they are not wages. Even if you take your annuity payout in a lump sum, it will not count against your SSA payments.

What Counts as Earnings for Social Security?

For whatever reason, you may choose to take your SSA withdrawals prior to the normal retirement age as calculated by the social security system.

It could be that you need the income to pay bills or anticipate a lower life expectancy due to illness, overall health or family history. As you contemplate all sources of retirement income as you enter old-age, keep in mind that wages earned while you are receiving early SSA payments will lower your monthly SSA benefits.

You can get Social Security retirement or survivor benefits and income from work at the same time. However, there is a limit to how much you can earn and still receive full benefits.

If you are younger than full retirement age, ages 62-67 for instance, and are receiving wages and social security for an entire year before reaching full retirement age, the SSA will deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2022, the income limit is $19,560.

In the year you reach full retirement age, the penalty is less, with a deduction of $1 in benefits for every $3 you earn above the limit. In 2022, this limit on your earnings in the year of full retirement age is $51,960. The SSA will only count earnings up to the month before you reach your full retirement age, not your earnings for the entire year.

The SSA provides calculators that can help you determine your eligibility and determine the impact of earned income on your SSA payments.

What Does Not Count as Earnings?

As a review, the types of income that do not count against your SSA benefits (when you take these benefits before your normal retirement age) include:

• annuity income
• dividends from investments
• interest from savings and other bearing accounts
• pension payments (defined contribution plans)

Can You Receive Social Security and Annuity Payments at the Same Time?

Yes, you can take payments from an annuity and social security at the same time without a reduction of your SSA benefits. If you are nearing but not yet in retirement, you may consider a deferred annuity to help accumulate more money.

Canvas annuities are available in three, five or seven year guarantee periods, meaning that the interest rate (currently a whopping 5.50% for a three-year term) is guaranteed to be paid. No stock market jitters with a fixed annuity from Canvas and you can buy right over the phone or directly from the Canvas website.