Investment earnings do not directly impact the size of your Social Security retirement benefits. The Social Security Administration won't reduce your benefit amount on account of investment profits. However, investment income can indirectly affect retirement benefits by causing a portion to become subject to income taxes
The SSA applies limits to earned income when you choose to begin Social Security benefits early. Exceeding the limit reduces your benefits. Unearned income does not count toward the income limit. All investment income is unearned. Examples of investment income include: Capital gains from the sale of assets Dividend payments Stock option profits Interest from bonds or savings accounts Some other types of unearned income are annuities, pensions and benefits paid by government programs besides Social Security. These also do not lower your monthly payments
Earned income is money you make from working at a job or from self-employment. If you start collecting Social Security early, your benefits will be reduced if you have too much earned income. For example, in 2015 your benefits were reduced $1 for every $2 of earned income in excess of $15,720. Once you reach full retirement age this rule no longer applies and earnings from work, like unearned income, don't shrink your Social Security check. Full retirement age ranges from 65 to 67, depending on your date of birth.
Taxes and Benefits
Although the SSA doesn't take investment returns and other unearned income into account, the Internal Revenue Service does. This matters because investment income increases gross income. Too much gross income causes some of your retirement benefits to become taxable. Gross income includes earned income from work and self-employment as well as investment income, other unearned income and tax-free interest. Some amounts, such as unrealized capital gains and qualified distributions from a Roth IRA, aren't added to your gross income.
A Test for Benefit Taxability
The IRS provides a simple test to see if investment income and other amounts making up gross income might affect your Social Security retirement benefits. Divide your annual benefits in half and add the result to other gross income. If you're married and file a joint return, some of your Social Security may be taxable if the total tops $32,000. The threshold is $25,000 if you file as single, head of household, as a qualifying widow or widower or when you are married and file a separate return but don't live with your spouse. If you are married, file separately and live with your spouse for any part of the year, the threshold is zero.