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How Working in Retirement Can Affect Your Social Security Benefits

By the time you turn 60, you may be ready to leave the workforce for good. But some seniors aren’t in the financial position to quit their jobs. While working in retirement won’t prevent you from claiming your Social Security benefits, it could affect your benefit amount. If you’re planning to work after you retire, here’s what you’ll need to consider before taking Social Security.

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You May Not Get the Full Benefit Amount

Normal retirement age for most people these days is either 66 or 67. You can, however, start drawing Social Security benefits as early as age 62. But if you take benefits early and then go back to work, the Social Security Administration (SSA) may reduce your benefit amount.

For 2016, if you’re below full retirement age, the SSA will reduce your benefits by $1 for every $2 you earn above the annual earnings limit (which is $15,720). The rules change a little in the year you reach full retirement age. At that point, the SSA will deduct $1 for every $3 you earn above a certain threshold (which is currently $41,880).

If you’re worried about being penalized, there’s a silver lining. Only earnings for the months before you reach full retirement age will count against you. So you won’t be penalized for the whole year.

You’ll Get the Benefits You Lost Later On

How Working in Retirement Can Affect Your Social Security Benefits

One common misconception is that if your benefits are reduced while you’re working in retirement, you’ll never get that money back. In reality, the SSA uses the funds that are withheld to recalculate your benefit amount once you reach full retirement age. In other words, you won’t miss out on any of your benefits. You’ll just delay them.

When you finally reach full retirement age, your Social Security outlook will brighten a little. At that point, you can work as much as you like without having any of your benefits withheld.

Only Certain Types of Income Are Considered Earnings

The SSA does distinguish between different kinds of income when deciding whether to reduce your benefits. Only wages earned from a job or earned net income from self-employment count as income in benefits calculations. If you receive a pension, an annuity or any investment income, none of those earnings will affect your Social Security payout.

Plan Ahead if You’re Going to Work in Retirement

How Working in Retirement Can Affect Your Social Security Benefits

If you intend to continue working after retirement, you’ll need to decide when to begin tapping into Social Security benefits. While you can take benefits starting at age 62, there are downsides to doing so. The SSA may withhold some of your income and the benefit amount you’re eligible for will decrease.

By retiring at 62, your benefit amount could fall by as much as 30% (depending on your birth year). On the other hand, if you delay taking Social Security you can raise your benefit amount. Someone born after 1960 who waits until age 70 to start claiming their benefits would be eligible to receive 124% of their monthly benefit amount.

If you’re going to be working for personal enjoyment instead of financial need, delaying Social Security could be a good idea. On the other hand, if you must continue working because you haven’t saved enough money for retirement, taking Social Security early might make more sense.

Photo credit: ©iStock.com/gpointstudio, ©iStock.com/Pamela Moore, ©iStock.com/FangXiaNuo

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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