According to Pew Research, more older Americans – those ages 65 and older – are working than at any time since the turn of the century. Whether it’s a desire to work, a need to work, or a combination of both, you’re certainly not alone if you’re planning to work past the age of 65.
You can get Social Security retirement or survivors benefits and work at the same time. But, if you’re younger than full retirement age, and earn more than certain amounts, your benefits will be reduced.
But there is good news: The amount that your benefits are reduced, however, isn’t truly lost. Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings.
What is full retirement age?
Everything that we’ll discuss in this article hinges upon whether you begin receiving retirement benefits before or after your full retirement age. Your full retirement age, or the age at which you qualify for 100% of your Social Security benefit, depends on the year in which you were born.
If you were born before 1938, your full retirement age is set at age 65. If you were born between 1938 and 1954, the full retirement age increases progressively from 65 up to 66. If your birth year is 1955 or later, your full retirement age increases progressively up to 67. Age 67 is currently the oldest full retirement age though this could increase in the future.
How much can you earn and still get benefits?
If you work, and are full retirement age or older, you may keep all of your benefits, no matter how much you earn.
If you’re younger than your full retirement age, the Social Security Administration will reduce the amount you receive in Social Security benefits if you earn over a set income limit. In 2017, that limit increased to $16,920 from $15,720 in 2016. If you’re younger than full retirement age during all of 2017, the SSA deducts $1 from your benefits for each $2 you earn above $16,920.
Sound confusing? The SSA provides this example to show how this would work with real numbers:
“Let’s say that you filed for Social Security benefits at age 62 in January 2017 and your payment will be $600 per month ($7,200 for the year). During 2017, you plan to work and earn $22,000 ($5,080 above the $16,920 limit). We would withhold $2,540 of your Social Security benefits ($1 for every $2 you earn over the limit). To do this, we would withhold all benefit payments from January 2017 through May 2017. Beginning in June 2017, you would receive your $600 benefit and this amount would be paid to you each month for the remainder of the year. In 2018, we would pay you the additional $460 we withheld in May 2017.”
If you reach full retirement age during 2017, the SSA deducts $1 from your benefits for each $3 you earn above $44,880 until the month you reach full retirement age. Here’s an example from the SSA that illustrates how this would work:
“Let’s say you weren’t yet full retirement age at the beginning of the year, but reach it in November 2017. You earned $45,900 in the 10 months from January through October. During this period, we would withhold $340 ($1 for every $3 you earn above the $44,880 limit). To do this, we would withhold your first check of the year. Beginning in February 2017, you would receive your $600 benefit, and this amount would be paid to you each month for the remainder of the year. In 2018, we would pay you the remaining $260 we withheld in January 2017.”
Not all earnings are equal
The Social Security Administration only counts wages that you earn by working for an employer toward your earning limit. That means that if you’re self-employed, the Social Security Administration bases its calculation on your net earnings, not your gross earnings. You should remember, though, that Social Security will count contributions to pension or retirement plans if they’re included in your gross wages. Any dividend income, interest, pensions, government payments, investment earnings, or capital gains that you may have do not count toward the earning limit.
The special first year rule
If you retire mid-year and you’re not yet at your full retirement age, it’s possible that you will have already earned more than the annual earnings limit. Don’t worry, the Social Security Administration has a special rules that applies to your earnings during that first year of retirement. Under this special rule, you can get a full Social Security check for any whole month you’re retired, regardless of your yearly earnings.
But what happens after that first year? In 2017, a person younger than full retirement age for the entire year is considered retired if monthly earnings are $1,410 or less.
This may be easier to understand in the following example from the Social Security Administration:
“John Smith retires at age 62 on October 30, 2017. He will earn $45,000 through October. He takes a part-time job beginning in November earning $500 per month. Although his earnings for the year substantially exceed the 2017 annual limit ($16,920), he will receive a Social Security payment for November and December. This is because his earnings in those months are $1,410 or less, the monthly limit for people younger than full retirement age. If Mr. Smith earns more than $1,410 in either November or December, he won’t receive a benefit for that month. Beginning in 2018, only the annual limit will apply to him.”
What happens to those benefits that are withheld?
If some of your retirement benefits are withheld because of your earnings, your monthly benefit will increase starting at your full retirement age to take into account those months in which benefits were withheld.
Each year, the SSA reviews the records for all Social Security recipients who work. If your latest year of earnings turns out to be one of your highest years, they will refigure your benefit and pay you any increase due. Because of this, working during retirement can yield bigger benefits as well as additional income.
Need more help?
Social Security income limits can definitely be confusing and your situation may bring extra complexity. If you have any questions about the impact of working on your Social Security benefit, please contact me here.