Kelly Greene

I retired in June 2007 from General Motors Corp. at age 64 and started collecting Social Security. I was given a $35,000 cash payment. It was not wages; instead, it was a retirement payout due to a special attrition program. The Social Security Administration said the money is earnings, so I am not able to collect Social Security payments at this time. Can you help?

Ted Bronowicki, Hinsdale, Ill.

We have bad news – along with a strategy that might ease the pain – after seeking advice from a financial planner in Grand Blanc, Mich., whose firm works with almost 2,000 autoworkers.

As you have discovered the hard way, when you collect Social Security before reaching your full retirement age (which in your case is 66) – and if you're still working – you could see your benefits reduced because of the Social Security Administration's “earnings test.” This year, for example, $1 will be deducted from your Social Security payout for every $2 you earn above $13,560. For 2007, the limit was $12,960.

In general, if a severance payment was made from the same pot of money as regular wages, the payment counts against you in that calculation; if the payment was made as pension money, it doesn't affect your Social Security, said David Kudla, chief executive and chief investment strategist of Mainstay Capital Management LLC.

Here's how you can figure it out: If your severance was reported on a W-2 and had Social Security and Medicare taxes withheld, it was paid as regular wages. If it was rolled into a 401(k) or IndividualRetirement Account, generating a 1099 form, it was paid from pension money, hesaid.

Unfortunately, the severance payments that GM made in 2006 and 2007 were indeed gross wages for which workers (like you) received W-2s, and from which Social Security and Medicare taxes were paid, Kudla said. In contrast, GM and Ford Motor Co.have early-retirementprograms this year that use pension money instead of wages.

“If you're offered a buyout, find out the source of those funds and how those funds are going to be distributed to you,” Kudla said. “If it's going to come as W-2 wages, then it's gross wages, and the earnings test will apply.”

Here's the not-so-bad news: There is a way to increase your Social Security payments down the road. Depending on your financial situation and health, you may want to consider “undoing” your decision to take Social Security benefits early “simply by paying back without any interest the benefits you've received,” Kudla said. Then, you can reapply for Social Security later and get the bigger checks you would have received for waiting.

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