6 Things You Must Know While Collecting Social Security
Written by
Sean Bryant
Edited by
Melanie Grafil
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There are many reasons you might want to work during retirement. With inflation, life is getting more expensive, so you might need the extra cash. Or maybe you are bored and find work to be fulfilling.
Whatever the reason, working and earning money is possible while collecting Social Security benefits. However, your monthly benefit may be reduced.
If you are making money while collecting Social Security benefits, there are several things that you should be aware of to enjoy a financially comfortable retirement and avoid surprise financial repercussions.
What Counts as Income
Depending on where your money is coming from, it may or may not count as income, according to the Social Security Administration. To be considered income, the money must be wages earned by working for someone else, net earnings from self-employment or contributions you make to a pension or retirement plan if the contribution is included in your gross wages.
Things not considered income include other government benefits, investment earnings, interest, pensions, annuities and capital gains.
Social Security Income Limits
There are limits on how much money a retiree can earn and still receive full Social Security benefits. If earnings exceed a certain threshold, benefits may be reduced.
“Understanding these thresholds is vital for individuals who plan to continue working or have part-time employment after claiming Social Security,” said Jonathan Rosenfeld, founder of Rosenfeld Injury Lawyers in Chicago.
Rules also differ for workers who earn income before the year of full retirement age and those who earn income during and after the year of full retirement age. If you earn income before the year of full retirement and are earning more than the limit, your Social Security benefit may be reduced by $1 for every additional $2 earned. The limit for 2024 is $22,320.
If you earn income in the year that you reach full retirement age, your Social Security benefit is reduced by $1 for every additional $3 earned. The limit for 2024 is $59,520.
After reaching full retirement age, no deductions are made from benefits, regardless of how much you earn.
“Navigating the Social Security earnings test is crucial for those looking to supplement their income,” Rosenfeld said. “Knowing the limits and consequences, especially before reaching full retirement age, is key to maximizing overall financial well-being.”
Your Full Retirement Age
Your full retirement age is the year when you are entitled to receive 100% of your Social Security benefits. If you choose to start receiving benefits before you reach full retirement age, your monthly check may be reduced by up to 30%.
Your full retirement age is based on when you were born. If you were born in 1960 or later, your full retirement age is 67. If you were born earlier than 1960, you will have an earlier retirement age, which gradually decreases to 66 for those born between 1943 and 1954.
“By strategically delaying your Social Security claims,” Rosenfeld said, “you can significantly boost your monthly benefit amount.”
How Social Security Credits Work
To qualify for Social Security benefits, you need 40 credits over your working life, which is equal to 10 years of full-time work. In 2024, you will get one credit for every $1,730 of earnings, up to a maximum of four credits per year.
Social Security calculates your benefit amount based on your earnings over the years. The more money you earn, the more you pay into Social Security and the higher your future benefits will be. However, there are caps on Social Security benefit amounts.
How You Pay the Penalties
If you receive a penalty for earning too much money during retirement, the Social Security Administration will withhold your benefits. Because the SSA doesn’t do partial reductions, it will withhold your entire check and refund any overages in the subsequent year.
If you incur penalties before you reach full retirement age, your benefit amount may still increase in future years. If you retire early and the Social Security Administration withholds some of your benefits because you earned too much, your benefits will be recalculated to reincorporate those withheld benefits when you reach full retirement age. This will allow you to earn a higher benefit amount.
“Considering the tax implications of Social Security income is a critical aspect of financial planning,” Rosenfeld said. “Being proactive in understanding how your overall income affects the taxation of benefits can help you make informed decisions, ensuring you retain more of your hard-earned money during retirement.”
Working Outside the United States
The rules are different if you retire and work outside the United States. If you take Social Security benefits and work outside the United States but are younger than full retirement age, your benefits will be reduced for every month you work more than 45 hours in a job or self-employment role, not subject to the U.S. Social Security taxes. This applies regardless of how much or how little money you earn.
The Bottom Line
Effectively making money while collecting Social Security requires thoroughly understanding the rules, limitations, and strategic options available. This understanding can help you maximize your income and enjoy a financially secure retirement.
“It’s crucial to remember that the laws and regulations pertaining to these concerns can be difficult to navigate and can differ significantly based on individual circumstances,” said Min Hwan Ahn, an immigration attorney in Philadelphia. “Thus, it’s always a safe bet to consult a professional who’s well-versed with these matters and can provide personalized advice based on your particular scenario.”
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