|If you own and operate a business and
you're getting ready to retire, Social Security will need to know
whether you'll be completely retired or whether you plan to continue
some involvement in the business.
To get all of your Social Security retirement benefits, you must
retire, or at least reduce your 1998 earnings below $9,120 if
you're under age 65, or below $14,500 if you are 65-69. If you
reduce your earnings, you also must reduce your involvement in
the business so that it corresponds with the amount of your earnings.
When you work for wages, it's easy to determine whether you're
"retired." Your earnings tell the whole story. But when
you work in a business that you or your family owns, or you are
an officer in a corporation, it's not as simple. Because you could
be in a position to control your earnings, you may need to furnish
us with additional information--such as tax returns or corporate
records--when you file for benefits. This will help us decide
whether you have reduced your services in the business to match
the reduction in your income. In other words, your earnings must
match the work you do. You cannot simply pay yourself a smaller
salary to stay under Social Security's earnings limits.
This factsheet provides you with information on how we decide
whether a person meets Social Security's definition of retirement
and describes the types of evidence we need to make that decision.
How Earnings Reduce
Your Social Security Benefit
In 1998, if you are under age 65, you can earn up to $9,120 and
still receive full benefits. For every $2 you earn over this limit,
$1 is withheld from your benefits. For people age 65 through 69,
the 1998 earnings limit is $14,500. For every $3 you earn over
this limit, $1 is withheld from your benefits. There is no earnings
limit after you reach age 70.
Are You Really Retired?
When you apply for Social Security benefits, there are several
situations requiring additional information and evidence to help
us decide your level of retirement. For example,
additional questions would be appropriate if you are --
- involved in a family business, or another family member is
assuming some, or all, of your duties;
- continuing to render services for the business at a reduced
rate of compensation;
- in a position to control your earnings in order to receive
Social Security retirement benefits;
- still the owner or part-owner of a business and own stock
in the business; or
- splitting wages with others (dividing former salary between
you and your spouse or children, for example).
What Additional Evidence May Be Needed?
In addition to the retirement benefit application, we'll ask
you to tell us about your retirement plans. We also may ask you
to complete a Self-Employment/Corporate Officer Questionnaire
(Form SSA-4184) to provide us with information needed to determine
whether you're retired. You also may be asked for additional documentation
such as personal and business tax returns, corporate resolutions,
stock transfer agreements and resignations. We pay special attention
to situations in which your salary has been reduced but you are
compensated through another form of payment. These may include
an increase in dividends, an increase in salary to another family
member (with no change in responsibility), excessive rent or loan
repayments and unexplained business expenses.
What We Count As Earnings
When you continue to receive compensation, we consider the work
you performed and the amount you earned while working and compare
it with your work and earnings after "retirement." We
determine the reasonable value of the services you perform for
the business, based on the time spent and nature of the services,
and compare it to the income you receive. If we decide that the
value of your services exceeds your income, we must determine
a dollar amount for those services and count it against Social
Security's annual earnings limits.
Also, if we determine that you are not retired and that your
earnings have been underreported, we have the right to adjust
your Social Security earnings record. We also may notify the Internal
Revenue Service so that it may determine whether your tax liability
The following example describes a situation that would require
an extensive interview and documentation because the person is
retiring from a family business or corporation. Let's say Mr.
Davenport owns and manages a furniture store and he is about to
file for Social Security benefits. He decides to name his wife
as manager even though he intends to continue to control and manage
the business. We will need to compare his earnings to the level
of work he performed before he named his wife manager.
If we learn that his "retirement" is merely a paper
transaction transferring earnings to his wife with no reduction
in his services, we would adjust his earnings to reflect his involvement
in the business and pay benefits based on those adjusted earnings.
We would not suggest that Mr. Davenport completely discontinue
his involvement with the business. Instead, we would remind him
that if he wants to continue to work, the amount of his earnings
must match the amount of work he does.
Early Contact With Social
Security Office Is Important
You should check with us well before filing for benefits to make
sure you are aware of the documentation you will need to furnish
for the interview. Remember--you have to "retire" to
collect "retirement" benefits--or at least significantly
reduce your involvement in business and keep your earnings within
the income range (explained on the front of this factsheet). That
will permit us to pay some or all of your Social Security benefits.