All You Need To Know About Collecting Social Security While Still Working

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Social Security retirement benefits are meant as a supplemental income source, to be used in conjunction with personal retirement savings or pensions. As such, many “retirees” continue to work part-time or side jobs in order to maintain their standard of living. One important thing to note, however, is that in some cases earning outside income can reduce the amount of your Social Security payout. Here’s a brief overview of what you need to know about collecting Social Security while still working. 

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Full Retirement Age

If you wait until your full retirement age to claim Social Security benefits, you’re in luck. No matter how much you earn on the side, your Social Security earnings won’t be reduced. For those born between 1943 and 1954, full retirement age is 66. Full retirement age increases by 2 months every year for those born between 1955 and 1959, until it reaches 67 for those born in 1960 or later.

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Payout Reduction for Working Before Full Retirement Age

The Social Security Administration doesn’t prevent you from working and earning after you’ve begun drawing payments, but it will temporarily reduce your benefits if you haven’t yet reached full retirement age. Specifically, the SSA will reduce your benefits by $1 for each $2 in earnings you have above the annual limit. In 2021, this limit is $18,960.

Imagine a scenario in which you’re 63 and drawing Social Security benefits but also working a part-time job and earning $28,960. In 2021, your benefits will be reduced by $5,000, as you’re earning $10,000 above the annual limit.

However, you shouldn’t let this deter you from working while drawing Social Security benefits. What many taxpayers overlook is that no matter how much the SSA withholds from your payouts, you’re still entitled to that money. Once you hit full retirement age, the SSA will increase the amount of your benefit to account for prior withholdings.

Special Rules for the Year You Hit Full Retirement Age

In the year you reach full retirement age, you’re likely to go over the SSA earnings limit, as you might still be working your full-time job for half the year or more. In recognition of this, the SSA makes some adjustments to the earnings withholding policy. Rather than reducing benefits by $1 for every $2 you earn, in the year you hit full retirement age, your benefits are only reduced by $1 for every $3 you earn. Additionally, the earnings limit gets a substantial boost, from $18,960 to $50,520.

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So, if you earn $59,520 before hitting full retirement age, your payout will be reduced by $3,000, as you’re $9,000 over the earnings limit. However, the month you hit full retirement age, your benefits will be adjusted upwards to reflect the prior withholding.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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