You can get Social Security benefits if you continue to work and earn an income. But if you earn more than a certain amount from your work and you have not yet reached your retirement age, your benefit will be temporarily lower. Here’s an overview of how earned income can reduce your Social Security benefits.
Key learning points
- You can get Social Security and work at the same time, but your monthly benefits may be reduced.
- When you reach full retirement age, you can receive your full benefit regardless of how much you earn.
- If your full retirement age is 67, you can begin collecting Social Security benefits when you turn 62.
- If you’re under full retirement age, Social Security will deduct $1 from your benefits for every $2 or $3 you earn above a certain amount.
- After you reach full retirement age, Social Security increases your benefits to account for the money it previously withheld.
Can I work while collecting Social Security?
Working during retirement
Remember the days when you could actually retire once you reached a certain age? You could travel, pursue hobbies and spend more time with family and friends after decades of hard work.
With an increasing number of people unable to save enough to spend their later years in leisure time, many are spending their retirement in another job, if they retire at all. Of course, some people just enjoy working and want to continue their careers — or do something else that keeps them employed — in retirement.
Whatever your motivation, continuing to work after receiving Social Security will complicate eligibility for full benefits.
How Social Security Credits Work
For some, it’s not that hard to qualify for Social Security. During your working life you need 40 credits to be eligible for benefits, which is equivalent to 10 years of full-time work. In 2023, you get one credit for every $1,640 in revenue, which is an increase from the $1,510 figure in 2022, up to a maximum of four credits per year.
Social Security calculates your benefit amount based on your income over the years, whether you were self-employed or worked for an employer. The more money you made, 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 how it actually works.
How earnings are deducted from benefits
The Social Security Administration allows retirees to work and still receive retirement benefits. However, if income exceeds a certain threshold, benefits may be reduced. The rules differ for employees who earn income before the year of full retirement age and those who earn income during and after the year of full retirement age.
If before the year of full retirement and earning more than the limit, Social Security benefits may be reduced by $1 for every additional $2 earned. For 2022, the limit is $19,560 and for 2023, $21,240.
In the year the employee reaches full retirement age, the benefit is reduced by $1 for every additional $3 earned. In 2022, the income limit for these recipients is $51,960. For 2023, the win limit is $56,520.
After reaching full retirement age, no deductions are made from benefits, regardless of how much the employee earns.
Discounts on social security
For workers whose income exceeds the income limit, the Social Security Administration (SSA) cuts their benefits by a fraction of what they earn. It may seem that the administration would withhold a portion of each payment until it is satisfied. However, any monthly benefit will be withheld until the obligation is met.
Fortunately, all is not lost. The reduced amounts are returned at full retirement age. Unlike rebates that consume each benefit until it is fulfilled, the refund is paid gradually over time.
Example of social security and working
Consider a 62-year-old single taxpayer who receives a monthly Social Security payment of $700. To stay active, they went to work part-time for a local company, earning $25,000 a year.
Because their income exceeds the income threshold by $5,440 ($25,000 – $19,560) in 2022, the Social Security Administration will reduce their benefits by $2,720 ($1 for every $2 earned or $5,440/$2). The SSA withholds the first seven benefit payments and reduces the 8th payment by $540.
What is the full retirement age?
For Social Security purposes, your full or normal retirement age is between 65 and 67, depending on the year you were born. For example, if your full retirement age is 67, you can start receiving benefits at age 62, but your benefits will remain permanently 30% lower than if you waited until age 67.
If you can manage without receiving your Social Security benefits at full retirement age, you can wait until age 70. That gives you the maximum benefit every month.
It makes no sense to wait past age 70 to start collecting benefits.
Social security income limits
The Social Security Administration (SSA) reported in October 2021 that the estimated average monthly retirement benefit will be $1,827. While that regular monthly income helps, it’s usually not enough to cover living expenses. That is one of the reasons why many people work longer.
If you work, the money you take home can affect your Social Security benefits, but the details depend on your age and how much you earn. Remember that while your full retirement age may be 67, you can start receiving benefits from age 62 even if you are still working.
But here’s the catch: If you start taking benefits before full retirement age for tax year 2023, you can earn up to $21,240 ($19,560 for 2022) and still get your full benefits. Once you earn more than the limit, Social Security deducts $1 from your benefits for every $2 you earn.
The year you reach full retirement age, Social Security becomes more forgiving. If you earn more than $56,520 in 2023 ($51,960 for 2022), $1 is deducted for every $3 you earn, but only in the months before you reach full retirement age. Once you reach full retirement age, you can earn any amount and your monthly benefit will not be reduced.
Keep in mind, however, that money withheld from your benefit is not permanently lost. After you reach full retirement age, Social Security will recalculate and increase your benefit to account for previously withheld benefits.
The number of people expected to receive some type of Social Security benefit in 2023.
How does Social Security know?
You may be wondering how the Social Security Administration tracks your work and your earnings. The answer: it doesn’t. It is your responsibility to report how much you have earned.
“The most important thing to remember if you work is to notify the Social Security Administration if you start earning a wage that exceeds the income threshold,” says Matt Ahrens, a financial advisor with Integrity Advisory Group.
Otherwise, he notes, “They don’t get to know about your earnings until you file your tax returns the following year. And if you received too many distributions, you could be fined, forced to refund the deductible, or lowered. receive future benefits.”
Working outside the United States
If you retire and start working outside the United States, the rules are different. If you’re under full retirement age, Social Security will reduce your benefit for each month you work more than 45 hours in a job (or self-employment) that isn’t subject to U.S. Social Security taxes. That applies no matter how much money you make. These rules can get complicated, so check with Social Security for advice on your specific situation.
Can you collect Social Security at age 62 and still work?
You can receive retirement benefits at age 62 and still work. However, if you earn above a certain amount, your benefit will be temporarily reduced until you reach full retirement age.
What is the full retirement age?
Full retirement age is the age at which you are eligible for full Social Security benefits. It is 66 years and two months for those born in 1955 and gradually increases to 67 for those born in 1960 and after.
How Much Can I Earn and Still Collect Social Security?
If you start collecting benefits before you reach full retirement age, you could earn up to $21,240 in 2023 ($19,560 for 2022) and still get your full benefits. Once you earn more, Social Security deducts $1 from your benefits for every $2 earned.
It comes down to
If you have paid Social Security long enough to earn 40 credits and have reached your full retirement age, you can earn as much money as you want without your Social Security benefits being reduced. If you start collecting benefits earlier and you earn above a certain amount, part of your benefit will be withheld. But once you reach full retirement age, Social Security will recalculate your benefit to make up for the money previously withheld.