The answer is yes, you can work while collecting your Social Security benefits. But, you might have to forfeit some of those benefits depending on when you retire and how much you earn.
Attending a Social Security Strategies Workshop is a great way to learn more about how working while collecting benefits could fit into your retirement plans.
Working in retirement
Probably the most important thing to remember when planning for Social Security benefits is the day you reach a milestone known as your full retirement age. People born between 1955 and 1959 hit their full retirement age anywhere from two to 10 months after their 66th birthday while those born after 1960 reach this milestone on their 67th birthday.
People who sign up for Social Security benefits before their full retirement age – what the Social Security Administration calls “taking an early retirement” — will earn less from the program each month than they would have earned if they had waited. A person born after 1960 would earn 70 percent of their basic benefit amount if they signed up at age 62. They would earn 80 percent if they signed up at age 64. And, they would earn 93.3 percent of their basic benefit amount if they signed up for benefits at age 65.
Early retirees must also forefeet $1 for every $2 they earn while working a full- or part-time job if their income exceeds a limit the Social Security Administration sets every year based on prevailing wages. The administration collects this money by withholding a part, if not all, of the monthly benefit payment you would have normally earned.
For the sake of argument, let’s say you plan to retire five years before your FRA. You checked Social Security’s website and learned you could expect a monthly benefit payment of about $1,030 a month, which is 70 percent of what you’d receive if you waited until after your FRA to start benefits.
Social Security Benefits Math
You’ve realized this isn’t enough money to reach your retirement goals and decide to boost your income by working 25 hours a week at a part-time job that pays $18 an hour. Now it’s time to do some math:
- By the end of the year, you will have earned $23,400 from this part-time job, which is $5,160 more than the current earnings limit. (Please note: This amount changes year to year.)
- This means you must forfeit $2,580 worth of benefits — $1 for every $2 your earnings exceeded this year’s limit.
- The Social Security deducts this amount by withholding two of your monthly benefit payments ($2,060) and a little more than half of a third monthly benefit payment.
But on the flip side, you will receive some of this money back. That’s because the Social Security Administration considers every month it withholds money from a person’s benefit payments because they exceeded the earnings limit to be a month they worked.
It adds these extra months to a person’s retirement date and recalculates their monthly benefit payment when they reached their full retirement age. Using the example from before:
- The person was only earning 70 percent of their basic benefit amount because they stated benefits on their 62nd birthday, which was 60 months before their full retirement age.
- He or she would have incurred 15 months of reduced benefit payments if they kept working the same hours for the same wage between the time they retired and their 67th birthday. That’s three months a year over the course of five years.
- The Social Security administration adds these months to the person’s actual retirement date when it recalculates their benefit payments on their birthday.
- This means the person is now earning 77 percent of their basic benefit amount, which is what they would have earned if they retired at 63 and 3 months instead of when they were 62,
It’s important to note the rules are slightly different when you work the year you reach your full retirement age – the earnings limit is higher and the amount deducted is less – but the rest of the process works the same. The money earned from your post-retirement, part-time job might also increase your monthly payments if it happens to be more than what you earned in any one of the 35 years the Social Security Administration used to calculate your basic benefit amount.
We recommend attending a Social Security Strategies Workshop as one of the best ways to figure out how the rules regarding a post-retirement job could fit into your plans.