Does severance pay affect my Social Security? 

Not if it is for work you did before you started getting Social Security. Severance pay is one type of what Social Security calls “special payments,” a list that includes bonuses, back pay, payment for unused vacation time or sick leave, and various kinds of deferred compensation, such as stock options. Even if you receive the money after you start collecting benefits, Social Security treats it as connected to work done prior to your retirement.

Two occupations in which special payments frequently come up are insurance sales and farming. Many retired insurance agents get commissions on policies they sold before the year they retired. Likewise, a farmer who grew, harvested and stored a crop before retirement might not actually sell that crop until after retirement.

In both instances, Social Security regards this as income earned prior to retirement. It does not affect a farmer’s or insurance agent’s retirement benefits and does not count toward their earnings limits if they claimed benefits before they reached full retirement age (the age at which you qualify for 100 percent of the benefit calculated from your lifetime earnings).

Keep in mind

• If you were self-employed before retiring, net income you receive in the year after you start Social Security for services you performed before you began collecting benefits counts as special payments.
• If you believe income reported to Social Security includes a special payment, call 800-772-1213 or contact your local Social Security office. They will review the matter and determine whether the money counts toward your earnings limit.