Social Security benefits provide helpful monthly income, but many retirees still choose to work to supplement them. You can work and receive benefits at the same time, though earning above certain limits before reaching full retirement age can lead to temporary reductions.
Once you reach full retirement age, the SSA recalculates your payments to account for any withheld amounts, and keeping the agency informed of your earnings helps you avoid penalties.
Key Takeaways
- Working while receiving Social Security benefits can temporarily reduce benefits if you haven’t reached full retirement age.
- After reaching full retirement age, you can earn any amount without affecting your Social Security benefits.
- Social Security will recalculate and potentially increase your benefits once you reach your full retirement age to account for withheld funds.
- If working outside the U.S., Social Security withholding applies if you work more than 45 hours monthly before full retirement age.
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Understanding the Mechanics of Social Security Benefits
For some, qualifying for Social Security isn’t that difficult. Over the course of your working life, you need 40 credits to be eligible for retirement benefits, which is equal to 10 years of work, as defined by the SSA.
Social Security calculates your benefit amount based on your earnings over the years, whether you were self-employed or worked for an employer. The more money you earned, the more you paid into Social Security—and the higher your future benefits—up to certain limits. The math is much more complicated than this sounds, but that’s basically how it works.
Retirement Today: Social Security and Income Sources
Social Security benefits are a major source of retirement income for many retirees; however, retirees also have other sources of income, including pensions, defined-benefit plans such as 401(k)s, and investments. A growing share of older Americans are continuing to work as well.
“Peak 65”
A record-setting 4.1 million Americans will turn 65 each year between 2024 and 2027. However, the average retirement age is 61, meaning that many retirees will draw on Social Security benefits long before their full retirement age.
What Lies Ahead for Social Security Benefits
Social Security benefits may not be enough to cover expenses, but many retirees would find it difficult to survive financially without them.
Currently, Social Security data shows that the Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay full benefits through 2033. At that point, OASI will be able to pay 79% of benefits.
However, Congress could take steps to shore up Social Security and ensure full payments beyond 2033. Possible fixes include increasing payroll tax rates, raising the retirement age, and eliminating the cap on taxable income.
Balancing Work and Social Security: How Income Affects Your Benefits
If you work, the money you bring home can affect your Social Security benefits—but the specifics depend on your age and how much you earn. Remember that although your full retirement age might be 67, you can start receiving benefits at 62, even if you’re still working.
If you start receiving benefits before your full retirement age, you can only earn up to a set annual limit and still get your full benefits. Once you earn more than that limit, the SSA deducts $1 from your benefits for every $2 you earn.
In the year you reach your full retirement age, though, these numbers change. If you earn more than the higher set limit for the tax year, the SSA deducts $1 for every $3 you earn—but only during the months before you reach your full retirement age.
Once you reach your full retirement age, you can earn any amount of money, and the SSA won’t reduce your benefits.
Important
There’s no advantage to waiting past age 70 to start collecting benefits.
“The biggest thing to remember if you are working is to notify the Social Security Administration if you’re going to earn wages in excess of the earnings threshold,” said Matt Ahrens, a partner and chief investment officer at MarksNelson.
Otherwise, he notes, “They will not be notified of your earnings until you file your taxes the following year. And if you were receiving excess benefits, you can be fined, forced to pay back the excess, or receive lower future benefits.”
Practical Example: Earning Income Alongside Social Security
Consider a 62-year-old single taxpayer who receives a monthly Social Security retirement benefit. They began working part-time for a local business, where they earn $25,000 per year.
Because their income exceeds the earnings threshold by $2,680, the SSA will reduce their benefits by $1,340 ($1 for every $2 earned or $2,680/$2).
Navigating Social Security for Overseas Workers
If you retire and work outside the United States, the rules are different. If you are younger than full retirement age, Social Security will withhold your benefits for every month you work more than 45 hours for an employer (or as a self-employed worker) in a job that’s not subject to U.S. Social Security taxes. That applies regardless of how much money you earn.
These rules can get complicated, so you’ll want to contact Social Security for advice on your particular situation.
What Is Full Retirement Age?
Your full retirement age (which is also known as normal retirement age) is the age at which you become eligible to receive full benefits from the SSA. It is 66 years old for those born between 1943 and 1954 and gradually increases to 67 years old for those born on Jan. 2, 1960, and after.
If, for example, your full retirement age is 67, you can start taking benefits as early as age 62, but your benefit will permanently be 30% less than if you waited until age 67. If you can manage without receiving your Social Security benefits at full retirement age, wait until age 70. That will give you the maximum benefit each month.
Can You Collect Social Security at 62 and Still Work?
You can collect Social Security retirement benefits at age 62 and still work. If you earn over a certain amount, however, your benefits will be temporarily reduced until you reach full retirement age.
The Bottom Line
If you’ve earned the 40 credits needed for Social Security and have reached full retirement age, you can earn any amount without affecting your benefits. If you claim earlier and exceed the annual earnings limits, some benefits will be withheld, but once you reach full retirement age, the SSA will adjust your payments to account for what was previously held back.