Q: I’ve heard that if you earn too much while collecting Social Security that you can be penalized. What happens if I take money out of my IRA or I sell some investments? Will I be penalized then too?
A: You are correct in that people who are receiving Social Security retirement benefits before their full retirement age (66 for boomers retiring now) can only earn a certain amount or their benefits may be reduced. However, this rule applies to earned income only. It does not apply to IRA withdrawals, investments, or any other un-earned income.
In 2013, you can earn up to $15,120 before any of your benefits are reduced. If you earn over that amount, $1 will be deducted for every $2 you earn over the limit.
To give you an example, lets say you earn $13,000 in 2013. This is below the income threshold, so you will not have to pay back any of your benefits. This is true even if you sell $20,000 of stocks or take $10,000 out of an IRA.