Social Security and work: Believe it or not, the two go together almost perfectly.
It’s absolutely possible to work while collecting Social Security, but there are some things you should know.
If you’re at full retirement age, there’s no Social Security work penalty
If you’re at full retirement age, there’s no penalty for working while collecting Social Security. After full retirement age, you can collect as much income as you want without incurring any penalty.
Your full retirement age is determined by your date of birth. FYI: If you were born on or after January 2, 1960, your full retirement age is 67.
It is important to note that the rules discussed here relate to Social Security pension benefits. Different rules apply to Disability and Supplemental Security Income benefits.
For more information, Social Security Administration Retirement Planners Website.
What is the Social Security work penalty if I am younger than full retirement age?
If you decide to work while collecting Social Security benefits when you’re younger than full retirement age, you may be subject to penalties based on the amount of your earnings.
More than one year behind full retirement age
If you are under full retirement age during any year, the Social Security Administration will deduct $1 from your Social Security paycheck for every $2 you earn over an annual limit — for 2024, that limit is $22,320.
Year of reaching full retirement age
In the year you reach full retirement age, the Social Security Administration will withhold only $1 for every $3 you earned in the month before you reach full retirement age. Your benefits will not be reduced from the month you reach full retirement age, no matter how much you earned.
The Social Security Administration will also recalculate and deduct the amount of your benefits for any months in which your benefits were reduced or withheld because of your excess earnings.
Work penalties are likely recoverable
According to the Social Security Administration: guidance“Your benefits will be increased when you reach full retirement age to make up for benefits that were deducted due to previous earnings.”
Therefore, the penalty can be thought of as another way of saving for the future.
What is labor income?
If you are under full retirement age and still working, you may be wondering what exactly counts as working income. The following sources of income count as income:
- Wages from work
- Net income if self-employed
- Bonuses, commissions and vacation pay
- Employer contributions to a pension or retirement plan when the contributions are included in the employee’s gross wages
Income that doesn’t count includes pensions, annuity insurance, investment income and capital gains, interest, and veterans or other government or military retirement benefits.
Social Security and Work: You’ll Always Have to Pay Social Security Tax
Regardless of your full retirement age or whether you pay a work penalty, you’ll continue to pay Social Security tax on your earnings as long as you’re working.
The good news here is that your additional income could increase your Social Security benefit. The Social Security Administration reviews your record each year and will notify you if you qualify for a higher benefit.
When can I start receiving Social Security benefits?
The general rule of thumb is that you should delay starting Social Security benefits as long as possible, whether you plan to work or not.
Because the earlier you start, the less your monthly benefit will be.
NewRetirement Planner, the most comprehensive online planning platform, can help you determine the best time to start your benefits.
This powerful tool will tell you exactly how different Social Security benefit amounts and starting ages will affect your cash flow, net worth, the age at which you will run out of savings, and your debt situation. The tool even takes into account penalties for earned income received before full retirement age.
How long should I work?
Work has many benefits, including maintaining your enthusiasm for your job, social connections, mental stimulation, and of course, income.
You should work as much as you need and want.
If you’re not sure how long you’ll need to work, use the NewRetirement Planner to assess your income and savings needs. See how your work income will affect your long-term retirement plans.
You may also want to explore more information about the best jobs for seniors, the benefits of work, and tips for delaying retirement.
