Social Security can go a long way in retirement, but for many older adults, it's not enough to make ends meet. Whether your savings are falling short or you simply want to extend your career, working in retirement can be a smart way to maximize your income.
However, if you're working while collecting benefits, there's a sneaky rule that could affect the size of your checks. This rule won't apply to everyone, but if it affects you, it could reduce your benefits by $368 per month or more. In more drastic cases, you could even have your entire benefit amount withheld.
How working affects your Social Security
It's possible to continue working part-time or full-time after taking Social Security, but if you haven't yet reached your full retirement age (FRA), your income will affect your monthly payments. Your FRA will depend on your birth year, but it's age 67 for everyone born in 1960 or later.
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If you're under your FRA or will be reaching your FRA this year, your income will be subject to the retirement earnings test. This is essentially an income limit that will determine how much, if any, of your benefits will be withheld due to your job.
As of 2024, the median income among full-time workers age 55 to 64 is $1,197 per week, according to the U.S. Bureau of Labor Statistics. But let's say you're only working part-time and earning half that amount. That adds up to roughly $599 per week, or $31,148 per year.
There are two earnings test limits for 2024, depending on whether you will or not will reach your FRA this year:
| Earnings Test Income Limit | Benefit Reduction |
|---|
| If you will reach your FRA in 2024 | $59,520 per year | $1 reduction for every $3 over the limit |
| If you will not reach your FRA in 2024 | $22,320 per year | $1 reduction for every $2 over the limit |
Source: Social Security Administration. Table by author.
In this example, say you're 62 years old with an FRA of 67, and you're working part-time earning $31,148 per year. Since you won't reach your FRA this year, you're subject to the $22,320 annual limit.
Your income is $8,828 over that limit, so your benefits will be reduced by $4,414 per year -- or around $368 per month. If you were reaching your FRA this year, all other factors remaining the same, your benefits would not be reduced at all since your income is under the $59,520 annual limit.
In some cases, your benefits could be reduced drastically -- or withheld altogether. For instance, say that instead of working only part-time, you're working full-time earning $1,197 per week -- or $62,244 per year. If you're under your FRA, that income is a whopping $39,924 over the limit, which would reduce your benefits by around $1,664 per month.
The good news
Fortunately, these reductions are not permanent. Your benefits will be withheld until you reach your FRA, at which point the Social Security Administration will recalculate your payments. From then on, you'll receive larger checks that are no longer affected by any earned income.
That said, it's still important to know how your wages could affect your benefit amount. If you choose to continue working while on Social Security because you need the money, that could end up working against you if your benefits are significantly reduced or withheld entirely.
If you know you want to keep working later in life, you may be better off delaying benefits from the start. Waiting past age 62 to claim will increase your payments, sometimes by hundreds of dollars per month. These adjustments are permanent, so by delaying benefits, you'll earn larger checks for the rest of your life.
Keep in mind, too, that you have one opportunity for a do-over if you claim early and change your mind. Within 12 months of filing, you can withdraw your application and file again later. If you retire and start taking Social Security but then decide to go back to work, it may be wiser to withdraw your application and delay claiming than have your benefits withheld.
Working while on Social Security can be a smart way to maximize your income, but it's important to know how your wages will affect your benefit. The more prepared you are heading into retirement, the better off you'll be.
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