I am a one-year retiree, age 63. I'm considering returning to full-time employment and I was wondering about suspending social security benefirs. I ju st read your answer about that to another query, but I was wondering what it means that $1.00 out of every $2.00 over the additional income threshold will be withheld from my benefits. What does that mean? Does the money go back into (or remain in) my benefits account, or somewhere else?
Any amount of benefits withheld due to the earnings test are simply forfeited. Social Security recipients don't have an individual account that the benefits could be returned to. All Social Security retirement benefits are paid from the same trust fund, and any benefits withheld due to the earnings test simply remain in the trust fund.
If you forfeit benefits due to the earnings test those benefits are never directly returned to you. However, after you reach full retirement age (FRA), Social Security automatically adjusts your benefit rate to compensate for any months that your benefits were not paid due to the earnings test.
For example, say Dana's FRA is age 66 but she files for her benefits early at age 63. Dana's benefits rate at FRA would be $1000 but is reduced by 20% to $800 in return for starting to draw 3 years sooner. However, if Dana is only paid for 18 of the 36 months prior to FRA due to her earnings, her benefit rate would be adjusted at her FRA to remove 10% of the 20% reduction initially applied to her benefit rate, raising her monthly rate to $900.
So, if Dana in my example lives long enough, the $100 higher monthly benefit rate could potentially allow her to recover more than what she lost to the earnings test.