Whether you must continue to work while receiving Social Security
Social Security is generally considered a retiree’s primary source of income. However, there are no provisions preventing individuals from working and receiving Social Security benefits. In fact, according to the federal Bureau of Labor Statistics, more than a quarter of American adults ages 65 to 74 are still in the labor force, and this number is steadily increasing. So while there’s nothing wrong with working beyond traditional retirement age, it may affect your benefit amount. To help you decide, this article explains whether you should continue to work while receiving Social Security benefits.
Retirement benefits are becoming more expensive and it is becoming more difficult to save enough money for retirement. This is the main reason that forces people to work even after retirement. According to a 2023 Transamerica Center for Retirement Research report, only half of workers surveyed said savings will be their primary source of income in retirement.
According to the same study, about half of baby boomers expect to continue working past age 70 or not retire at all. Additionally, approximately 83% of respondents said they expected to continue working for financial reasons.
Aside from financial reasons, some people believe that working during retirement is a good way to pass the time and reduce dependence on Social Security. Many people also believe that working at least part time in retirement will give them a sense of purpose and structure.
Whatever the reason, the fact is that working while receiving Social Security benefits can negatively impact your monthly benefit check. So before you make a decision, you need to understand the pros and cons of working while receiving Social Security benefits.
Before discussing whether you should continue to work while receiving Social Security benefits, it is important to understand the concept of Full Retirement Age (FRA). You can start receiving Social Security benefits at age 62, but you can only collect 100% of your benefits once you reach FRA.
Your FRA depends on your year of birth. For example, for people born after 1960, the FRA is 67 years, and for people born between 1943 and 1959, the FRA is 66 to 67 years.
Now that you know the basics, it will be easier to decide whether you should continue to work while receiving Social Security benefits. Here are some things to consider when deciding whether you should continue to work while receiving Social Security benefits:
If you are working during your Social Security benefit period, SSA may withhold a portion of your benefits based on your income and FRA. In 2024, SSA can withhold $1 of your benefit for every $2 you earn over $22,320 until the year you reach FRA.
SSA can withhold $1 of your benefit for every $3 you earn over $56,520 in the year you reach FRA until you qualify for the full benefit.
There are no withholdings whatsoever after the month you reach full retirement age. You can earn as much as you want at your job and it will not reduce your monthly benefit payments.
Not all income matters
The base income that SSA uses to determine your withholding benefits does not include all of your income, but only earned income and some related income. For example, SSA considers bonuses, severance pay, etc. in addition to salaries and wages. On the other hand, SSA does not take into account household income, such as unemployment benefits and spousal income.
Report your earnings early
If you are working while receiving Social Security, SSA expects you to report your estimated earnings to your local Social Security office or call the National Helpline at 800-772-1213. The SSA then uses that number to determine how much to withhold. Next year, once the SSA receives proof (W-2s and other tax records) of your actual income, it will adjust your withholdings accordingly.
SSA will reimburse you
SSA does not lose any benefit amounts it withholds. Rather, you start repaying the money after you reach FRA. This means you won’t get your withheld benefits back in a lump sum, but SSA will add some of them back to your monthly benefits. You may be able to recover most, if not all, of your withheld benefits.
If you only received benefits for part of the year, different rules apply.
Many people don’t wait until December 31 to claim benefits. SSA uses different rules to determine which benefits will be withheld from such people.
For example, for people claiming benefits on October 1, SSA uses the “first year” rule. Accordingly, beneficiaries will receive full benefits for three months (October through December) if their monthly income is less than $1,860. SSA applies a $1 on $2 withholding rule if your income exceeds $1,860.
Your benefits may increase if you keep working
If you continue to work, your overall Social Security benefits will likely actually increase. SSA uses your 35 highest earning years to calculate your benefit amount. Even if you have already claimed benefits, SSA will recalculate your annual benefits based on inflation and earned income.
This means that if you continue to make decent money, your earnings later in life could be among your highest-earning 35 years, which in turn could increase your lifetime average monthly income.
