Many near-retirees become eligible for Social Security benefits while they’re still working. Should you start taking your benefits now? Or should you wait? Consider these factors and strategies to help maximize your income.
Published by Motley Fool Wealth Management Originally posted on Tue, Aug 6, 2024 Last updated on August 27, 2024
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The short answer is: Yes, you can work while receiving Social Security benefits.
The long answer is: Yes, you can work while receiving Social Security benefits, but there are conditions and consequences you will need to understand to make the best choices for you and your family.
Eligibility for Social Security retirement benefits starts at age 62 for most of us, but most people will not get their full Social Security benefit at age 62. Your full Social Security benefit won’t kick in until you reach your Full Retirement Age (FRA).
FRA varies by birth year. Anyone born in 1957 or earlier has already reached their FRA. For those born in 1958 or later, their FRA is: 1
| Birth year | FRA |
|---|---|
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
While reaching your FRA entitles you to your full benefit, waiting until age 70 to claim will maximize your initial and potential lifetime benefits. Between your FRA and age 70, your initial benefit level increases about 8% annually for each year that you delay. 2
If you’ve claimed your Social Security benefits before you've reached your FRA, and your earnings from employment or self-employment exceed the annual limit, then your benefit could be reduced.
Note that earnings from other, non-employment sources, including interest, dividends, capital gains, or a pension aren’t counted towards the earnings limit.
The Social Security earnings limit is updated every year. For 2024, the earnings limit is $22,320. For those people who are receiving their Social Security benefit and are younger than their FRA, their benefit will be reduced by $1 for every $2 of earned income above the earnings limit. 3
For example, if you had $100,000 of earned income, your Social Security benefit would be reduced by $38,840 on an annual basis, which equates to $3,236.67 less each month. This is calculated by taking the difference between $100,000 and $22,320, which is $77,680, and dividing it by 2 for the annual reduction, then dividing the annual reduction by 12 to get the monthly reduction.
This chart shows the amount of the benefit reduction at various levels of earned income.
| Earned income | Annual benefit reduction | Monthly benefit reduction |
|---|---|---|
| $20,000 | $0 | $0 |
| $25,000 | $1,340 | $111.67 |
| $50,000 | $13,840 | $1,153.33 |
| $65,000 | $21,340 | $1,778.33 |
| $80,000 | $28,840 | $2,403.33 |
| $100,000 | $38,840 | $3,236.67 |
| $150,000 | $63,840 | $5320.00 |
| $200,000 | $88,840 | $7,403.33 |
| $250,000 | $113,840 | $9,486.00 |
As you can see, the monthly benefit reduction can add up pretty quickly.
In the year that you will reach your FRA, there are two differences. First, the earnings limit increases (to $59,520 in 2024). The earnings reduction also decreases to a $1 reduction for every $3 in earned income above the limit. For example, someone with $100,000 in earned income during that year would see an annual benefit reduction of $13,493.33 and a monthly reduction of $1,124.44.
Once you pass your FRA, there are no restrictions on the amount of earned income you make, and there are no earnings limit reductions t o your Social Security benefit.
If your benefits are reduced due to exceeding the earnings limit, those benefits will be returned to you in the form of a higher benefit once you reach your full retirement age. This higher benefit will commence in January of the following year.
If your earnings during the years you receive Social Security are enough to fall inside your 35 highest earning years, then your benefit amount will be recalculated for each year that this is applicable.
Social Security offers a one-time “do over” if you change your mind about receiving your benefits after initially claiming them. You are able to withdraw your claim within the first 12 months of having your initial claim for benefits approved. 4
The process of withdrawing your benefit claim requires that all benefits received are paid back. This includes not only the Social Security benefits you received, but also any money withheld for Medicare premiums, taxes, garnishments plus any benefits received by family members as a result of your having claimed benefits. Additionally if any medical expenses were paid by Medicare Part A during this time period those expenses will need to be refunded to Medicare as well.
You can then reapply at a later date and your benefit will be based on your age and benefit level at the time you reapply.
Taxes are another angle to consider when working and drawing Social Security benefits. Social Security benefits can be subject to taxes based on your income and filing status.
The percentage of your benefit that may be subject to taxes is a function of your combined income, which is the sum of your adjusted gross income (AGI) plus any non-taxable interest income and one-half of your Social Security benefit. Note that your AGI is a function of all income received, not just income from employment or self-employment.
The level of taxation on Social Security works as follows: 5
Those who are married but file separately will generally pay taxes on their benefits.
People who are working, including working for themselves, often find that this portion of their income alone will push their combined income to a level where a portion of their Social Security benefits are taxable.
Continuing to work after you start receiving Social Security benefits can add to your future benefit levels — depending upon the amount you earn.
Your Social Security benefits are based on your 35 highest earnings years over the course of your working life. To the extent that your earnings from employment or self-employment (once you have claimed your Social Security benefit) fall into your top 35 earnings years, this can serve to increase your benefits in future years.
This is also true for people working longer into their 60s or 70s, regardless of when they claim their Social Security benefits.
With more people working later or phasing into retirement , the issue of how to balance working and drawing Social Security benefits is more prevalent than perhaps it has been in the past. There’s no one right answer — your life expectancy, your health, and your marital status will also come into play.
A knowledgeable financial advisor can help you work through the decision by modeling what your income and your taxes might look like, depending on when you claim your Social Security benefits and how much you believe you’ll be earning.
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Sources:
1 Social Security Administration, “ Retirement Benefits 2024 .” Accessed July 9, 2024..
2 Social Security Administration, “ When to Start Receiving Social Security Benefits. ” Accessed July 9, 2024.
3 Social Security Administration, “ Receiving Benefits While Working .” Accessed July 9, 2024.
5 Social Security - Income Taxes and Your Social Security Benefit https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html (accessed 7/9/2024)
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