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Social Security: How Work Affects Your Benefits

You may have done extensive retirement planning and have a sizeable retirement fund. Or maybe you still need to. Either way, Social Security retirement benefits will likely be fundamental to your retirement income.

You may be concerned that your Social Security retirement benefit payments may not be enough to help you live comfortably until the end of your life. After all, the Social Security Administration (SSA) projects the retirement trust fund can only pay full benefits until 2033.

The good news is that you can supplement your income by working while you collect Social Security retirement benefits. But in some cases, the SSA may reduce your benefits. Learn how work may affect retirees' Social Security retirement benefits.

Receiving Social Security Retirement Benefits

Social Security payroll taxes partly determine Social Security retirement eligibility. The Social Security taxes you've paid earn you “credits" toward retirement benefits. The self-employed must report their earnings records to the IRS and the SSA for annual credit calculations. The SSA calculates benefits by considering your covered earnings (earnings subject to Social Security taxation) and your birth year.

A taxpayer may claim Social Security retirement benefits early at age 62. But claiming retirement benefits early will result in a reduced amount than had you waited until full retirement age. You're entitled to 100% of your benefits at full retirement age.

The SSA advises that you consider the following factors before you decide to collect Social Security benefits early:

  • Current cash needs
  • Health and family longevity
  • Any plan to work during retirement
  • Other retirement income sources
  • Anticipated future financial needs and obligations
  • The amount of your Social Security retirement benefits

Another factor to consider is that family members may qualify for monetary and other benefits through your work record. For instance, your spouse (and you) may be eligible for Medicare, which usually starts when people reach 65.

Working While Receiving Social Security Benefits

If you work after collecting your full Social Security benefit, you may keep all your monthly benefits no matter how much you earn. But, if you haven't reached full retirement age and work while collecting Social Security checks, the SSA may decrease your Social Security benefits if you earn over a certain amount.

But performing work before full retirement age may not reduce the total value of your lifetime benefits. At full retirement age, the SSA will recalculate benefits to credit you for reduced or withheld amounts due to earnings over the limit. Also, the SSA will increase your benefit if higher wages raise your benefit amount.

Suppose you are a spouse or survivor with minor children or children with disabilities in your care. If you work and have benefits withheld, you will not receive increased benefits at full retirement age.

Different rules may apply if you work or plan to work outside the country. Special rules may also apply if you are a disability benefits beneficiary. This means you receive Social Security disability benefits from either the Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) programs. In these situations, you have to report all earnings to the SSA. You can contact your local Social Security Office or visit www.ssa.gov to report earnings or for more information.

How Much You Can Earn and Still Receive Social Security Benefits

Imagine you collect Social Security retirement benefits but are younger than full retirement age. The SSA will reduce your benefits by $1 for every $2 earned over the annual earnings limit. In 2023, the annual earnings limit is $21,240.

In the first year of full retirement age, the SSA will reduce your benefits by $1 for every $3 earned above $56,520. This reduction is only up to the month before you reach your full retirement age. The SSA offers an earnings test calculator to see how your earnings may affect your benefit amounts.

What the SSA Considers Part of Your Income

If you work for an employer, the SSA counts only your wages toward the earning limit. This income is counted when it's earned, not when it's paid. If you are self-employed, SSA counts only your net earnings. The SSA generally does not count other income, such as:

  • Government benefits
  • Investment Earnings
  • Interest
  • Pensions
  • Annuities
  • Capital Gains

The SSA does count pension or retirement plan contributions if the contributions are included in the person's gross wages. Your Social Security retirement benefits may be subject to federal income taxes if you have high, taxable income. Social Security retirement benefits may be subject to federal income taxes. To avoid a large tax bill, you can have your federal taxes withheld from your retirement benefits.

Ask a Lawyer About How Your Work May Affect Your Benefits

It's essential to understand how Social Security rules may affect your retirement. If you think you might have to work during retirement, whether part-time or for the entire year, you may benefit from speaking with a Social Security attorney in your area. A Social Security lawyer can help you understand how possible monthly earnings during retirement may impact your future benefits.

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