Social Security and Working: Everything You Need to Know
You can absolutely get Social Security retirement benefits and work at the same time. However, there are a few things that you do need to know.
Social Security Work Penalties Determined by Your Age
There are no penalties for receiving Social Security and working at the same time if you have reached your full retirement age. After your full retirement age, you can earn as much money as you like without incurring any penalties.
Your full retirement age is determined by your birthday. For reference: If you were born between 1943 and 1954, then your full retirement age is 66. If you were born in 1960 or after, then your full retirement age is 67.
It is important to note that the rules described here are for Social Security retirement benefits. There are different rules for disability or supplemental security income payments.
For more information, you can consult the Social Security Administration’s Retirement Benefits Planner website.
What Are the Social Security Work Penalties If I Am Younger Than My Full Retirement Age?
If you decide to collect Social Security benefits and work at the same time when you are younger than your full retirement age, there will be penalties.
More Than a Year Under Your Full Retirement Age
If you’re younger than full retirement age during all of 2020, the Social Security Administration will deduct $1 from your Social Security paycheck for every $2 you earn above the annual limit. For 2020, that limit is $18,240.
The Year You Reach Your Full Retirement Age
In the year that you reach your full retirement age, Social Security will only deduct $1 for every $3 you earn above $46,920 until the month you reach full retirement age.
You Will Likely Recoup Your Work Penalties
According to the Social Security administration’s guidance, “your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings.
So, you can kind of think of the penalties as another way to save for your future.
What Counts as Work Earnings?
If you are under your full retirement age and working, you are probably concerned about what exactly counts as work earnings. The following income sources count as earnings:
- Wages from a job
- Net earnings if you are self-employed
- Bonuses, commissions, and vacation pay.
Income that is not counted includes pensions, annuities, investment income, interest, and veterans or other government or military retirement benefits.
Social Security and Working: You Will Always Pay Social Security Taxes
No matter your full retirement age and whether or not you are paying work penalties or not, if you are working, you will continue to pay Social Security taxes on your earnings.
The good news here is that your additional earnings could potentially increase your Social Security benefit amount. Social Security will check your record every year and will notify you if you have achieved a higher benefit amount.
When Should You Start Social Security Benefits?
The general rule of thumb is that you should delay the start of Social Security benefits as long as possible, regardless of whether you intend to work or not.
This is because the earlier you start, the smaller your monthly benefit check will be. You can use a Social Security break even calculator to determine the optimal time to start benefits.
Or, find out your different benefit amounts for different start ages and try various scenarios in a detailed retirement calculator. The NewRetirement retirement planning calculator will tell you exactly how your cash flow, net worth, out-of-savings age and debt situation will be impacted by different Social Security benefit amounts and start ages, factoring in penalties for any work income received before full retirement age.
How Long Should I Work?
There are so many benefits to work: staying engaged, social connection, mental stimulation – and, of course, income.
You should work as long as you need to and as long as you want to.
A retirement planning calculator can be a helpful tool to help you assess how work income impacts your long term retirement plan.