What Happens to Social Security Benefits If You Earn Too Much Money?

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Applying for Social Security retirement benefits doesn’t mean you have to stop working. Plenty of Social Security recipients still work while collecting benefits. However, your benefits might be reduced, depending on your age and how much you earn.

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Technically, the Social Security Administration considers you “retired” when you start receiving retirement benefits. If you are younger than full retirement age and earn more than the SSA’s yearly earnings limit, your benefits might be reduced. The full retirement age is either 66 or 67 years old, depending on if you were born before or after 1960.

If you are under full retirement age for the entire year, the SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2023, the limit is $21,240. In the year you reach FRA, $1 in benefits is deducted for every $3 you earn above a different limit. In 2023, this limit $56,520. The SSA only counts your earnings up to the month before you reach your FRA — not your earnings for the entire year.

When figuring out how much to deduct from your benefits, the SSA only counts the wages you earn from your job, or your net profit if you’re self-employed. This includes bonuses, commissions and vacation pay. The SSA does not count pensions, annuities, investment income, interest, veterans benefits or other government or military retirement benefits.

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If your earnings will be more than the limit for the year and you receive retirement benefits for only part of the year, the SSA has a special rule that applies to earnings for one year. Under this rule, you are paid a full Social Security benefit for any whole month the SSA considers you retired, regardless of your yearly earnings.

As an example of how earnings are deducted, the SSA offers this scenario: Suppose you are under full retirement age all year and are entitled to $800 a month in benefits, or $9,600 for the full year. You work and earn $31,240, or $10,000 more than the $21,240 limit during the year. Here’s what to expect:

  • Your Social Security benefits would be reduced by $5,000 ($1 for every $2 you earned more than the limit). You would receive $4,600 of your $9,600 in benefits for the year ($9,600 – $5,000 = $4,600).

Next, suppose you reach full retirement age in August 2023 and are entitled to $800 per month in benefits, or $9,600 for the year. You work and earn $63,000 during the year, with $57,000 of it in the seven months from January through July. This would put you $480 over the $56,520 limit. Here’s what to expect:

  • Your Social Security benefits would be reduced through July by $160 ($1 for every $3 you earned more than the limit). You would still receive $5,440 out of your $5,600 benefits for the first seven months ($5,600 – $160 = $5,440).
  • Beginning in August 2023, when you reach full retirement age, you would receive your full benefit ($800 per month), no matter how much you earn.
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If you receive survivors benefits, the SSA uses your full retirement age for retirement benefits and applies the annual earnings test (AET) to determine your payment. This rule applies even if the beneficiary is not entitled to retirement benefits.

For all Social Security beneficiaries, these earnings rules no longer apply once you hit full retirement age. Beginning with the month you reach FRA, your earnings no longer reduce your benefits — no matter how much you earn. The SSA recalculates your benefit amount to give you credit for the months it reduced or withheld benefits due to your excess earnings.

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If you are eligible for retirement benefits this year and are still working, you can use the SSA’s earnings test calculator to see how your earnings could affect your benefit payments.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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