In 2024, more than 71 million Americans receive benefits from the Social Security Administration (SSA) per month. But for many, this money is not enough and with the rising cost of living, retirees may consider re-entering the workforce on a part-time or full-time basis. However, earning an income may reduce the amount of your Social Security check.
Here’s how working while receiving Social Security could impact your benefits.
How does Social Security work?
Since 1935 Social Security has been an important source of income for retired workers and others. It offers a monthly benefit in the form of cash to its recipients. As of December 2023, the average monthly check is $1,767.03, according to the SSA.
Social Security is funded by a tax set by statute. Employees pay 6.2 percent of their income, up to the maximum income limit ($168,600 in 2024), while your employer kicks in another 6.2 percent of your salary. If you’re self-employed, then you’ll pay the entire 12.4 percent yourself.
Retirees can claim their full benefit at full retirement age, which depends on their birth year. For example, the full retirement age is 66 for those born from 1943 to 1954 and increases gradually to 67 for those born from 1955 to 1960. For anyone born in 1960 or later, full retirement benefits are payable at age 67.
Retirees can file for their benefit as early as age 62, but Social Security will reduce that benefit for every month that it’s claimed before the recipient’s full retirement age. If you filed as soon as possible and your full retirement age is 67, then you’d receive only 70 percent of your full benefit. This reduction in benefits is permanent.
In addition, Social Security imposes a temporary benefit cut if you claim early benefits while still continuing to work. It uses a retirement earnings test to determine whether your benefits should be cut and by how much.
What is the Social Security retirement earnings test?
The SSA sets an earnings limit for those who continue to work and collect Social Security before reaching full retirement age. How much you can earn without reducing your benefit depends on your age, whether it’s before you reach full retirement age, during the year you hit full retirement age or after you reach that age.
- If you’re before full retirement age: Those earning more than the earnings limit ($22,320 for 2023) will have $1 withheld from their Social Security benefit for every $2 earned above the limit.
- If you’re turning full retirement age this year: Those earning more than the earnings limit ($59,520 for 2024) will have $1 withheld from their Social Security benefit for every $3 earned above the limit. The earnings limit applies only to the months before you reach full retirement age, not your earnings for the full year.
- If you’ve reached full retirement age: Once you’ve reached full retirement, there is no limit on how much you can earn, and your earnings have no impact on your Social Security benefit.
For the earnings limit, the SSA does not count income from other government benefits, investment earnings, interest, annuities and capital gains. However, it does count an employee’s contribution to a pension or a retirement plan if the amount is included in the employee’s gross wages.
For the self-employed, the SSA counts only net earnings and considers the number of hours worked in the business in the month before full retirement age. If the individual reached a “substantial services” threshold, their benefit may be reduced.
While the earnings limit reduction is in effect, the reduction is not taken gradually. Social Security could withhold several months of checks until the earnings test overpayment is “paid off.”
Under the SSA regulations, rules for spouses claiming survivor benefits differ slightly in regards to full retirement age, depending on the age of both spouses and when and if benefits commenced. The earnings test does apply until full retirement age in this situation as well.
When are lost Social Security benefits recouped?
Any reductions to Social Security payments due to earning too much are temporary. Once workers reach full retirement age, they receive credit for their reduced benefits, and the SSA recalculates the monthly benefit at that time.
However, this credit is not restored all at once and is usually made up a little each year, and could take up to 15 years to completely recoup lost benefits. Over a typical lifespan, those who are subject to the retirement earnings test do recoup most or all of the benefits withheld.
Bottom line
Those thinking about filing for early Social Security benefits should carefully consider whether they’ll need to continue working before they reach full retirement age. If so, they’ll want to figure out whether the earnings limit will affect their benefit check and by how much. It can be a costly mistake, so it’s all the more reason to consider the best age to claim Social Security benefits.
Finding the right time to claim Social Security benefits can be a complex decision, so it’s useful to consult with a financial advisor to find the best options for your individual situation.
FAQs
Here's how the earnings test works: Social Security withholds benefits if your earnings exceed a certain level and if you're below normal retirement age. One of two different exempt amounts apply — a lower amount in years before the year you reach normal retirement age and a higher amount in the year you reach it.
How does the earnings test affect Social Security benefits? ›
The RET reduces Social Security benefits before you reach FRA , and then increases benefits for the remainder of your life when you reach FRA . Benefits withheld while you continue to work are not lost; they are added to your monthly benefit once you reach FRA .
What is the Social Security earnings test for 2024? ›
In 2024, if you're under full retirement age, the annual earnings limit is $22,320. If you will reach full retirement age in 2024, the limit on your earnings for the months before full retirement age is $59,520.
What kind of income reduces Social Security benefits? ›
When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net earnings if you're self-employed. We include bonuses, commissions, and vacation pay.
How does work affect your benefits in 2024? ›
If you're younger than full retirement age during all of 2024, we must deduct $1 from your benefits for each $2 you earn above $22,320. 2024, we must deduct $1 from your benefits for every $3 you earn above $59,520 until the month you reach full retirement age.
At what age is Social Security no longer taxed? ›
Social Security tax FAQs
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
What is the Social Security 5 year rule? ›
• If you become disabled before your full retirement age, you might qualify for Social Security disability benefits. You must have worked and paid Social Security taxes in five of the last 10 years.
What types of income do not count under the earnings test? ›
For the earnings limit, the SSA does not count income from other government benefits, investment earnings, interest, annuities and capital gains. However, it does count an employee's contribution to a pension or a retirement plan if the amount is included in the employee's gross wages.
How do I get the $16728 Social Security bonus? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
How much Social Security will I get if I make $100,000 a year? ›
If your pay at retirement will be $100,000, your benefits will start at $2,026 each month, which equals $24,315 per year. And if your pay at retirement will be $125,000, your monthly benefits at the outset will be $2,407 for $28,889 yearly.
This means you are paying into the Social Security system that protects you for retirement, disability, survivors, and Medicare benefits. Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes.
Do 401k withdrawals count as income against Social Security? ›
Are 401k Withdrawals Considered Income for Social Security Purposes? They're not income on which you'd have to pay Social Security taxes. Social Security only considers earned income, such as a salary or wages from a job or self-employment.
What can offset Social Security benefits? ›
Your benefit might be reduced if you get a pension from a government employer who wasn't required to withhold Social Security taxes. This reduction is called the “Government Pension Offset” (GPO). Learn more about this reduction (PDF).
How much can I earn in 2024 without affecting my Social Security? ›
In 2024, you can earn up to $4,960 per month ($59,520 per year) before benefits are withheld, at the rate of $1 in benefits for every $3 earned above the limit (instead of every $2). In 2023, the threshold was $4,710 per month ($56,520 per year).
At what age do you get 100% of your Social Security? ›
The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. The chart on the next page lists the full retirement age by year of birth.
At what age can you earn unlimited income without affecting Social Security? ›
You can earn any amount and not be affected by the Social Security earnings test once you reach full retirement age, or FRA. That's 66 and 6 months if you were born in 1957, 66 and 8 months for people born in 1958, and gradually increasing to 67 for people born in 1960 and later.
How does earned income affect Social Security benefits? ›
If you have reached your full retirement age, you can receive your entire benefit, no matter how much you earn. If you haven't reached your full retirement age, Social Security will deduct $1 from your benefits for every $2 or $3 you earn above a certain amount.
How often does Social Security recalculate benefits based on your earnings? ›
Payment increases from continuing to work
The Social Security Administration reviews income information each year and recalculates benefits as needed. So if you continue to work after you start receiving benefits and you earn more than at least one of those 35 years, your benefits will increase.
Does my spouse's income affect the earnings limit for my Social Security benefits? ›
Learn more. Your spouse's income only affects you if your spouse has taken Social Security early and you are collecting spousal benefits on their work record. In this case, your spouse's earnings could trigger withholding from both their retirement payment and your spousal benefits.
