Broker Check
How Will Working Affect Social Security Benefits?

How Will Working Affect Social Security Benefits?

May 26, 2022
Share |

You don't have to leave your job when you start receiving retirement benefits.

But continuing to earn income from work could reduce the amount of your benefits if you apply for Social Security before you reach full retirement age, the age at which you qualify to collect 100% of the maximum allowable benefit, based on your income history.

Until you reach full retirement age — currently 66 years and 2 months, and gradually increases to 67 — Social Security doesn't consider you completely "retired" if you earn more than a certain amount because of work and will deduct a portion of your benefits if your income exceeds that limit.

Income limits are adjusted annually according to national wage trends and are different in previous years and during the time you reach full retirement age.

If you receive benefits and work in 2021 but won't reach full retirement age until a year later, the income limit is $18,960. You lose $1 in benefits for every $2 earned over the limit. If you have a part-time job that pays $25,000 a year — $6,040 over the limit — Social Security will deduct $3,020 in benefits.

Let's say you'll reach full retirement age in 2021. In that case, the income limit is $50,250, with $1 in benefits withheld for every $3 you earn over the limit. That applies until the date you reach full retirement age: after that, there is no benefit reduction, regardless of how much you earn. In fact, Social Security increases your monthly benefits at that time so that over time you regain the benefits you lost because of the previous withholding.

If you receive wages, the income limit calculations are based on your gross salary; if you're self-employed, Social Security only counts your net income.

Please note that:

  • The income limit only applies to income from work. Investments, pensions, annuities, and capital gains are not counted.
  • If your Social Security payments are reduced because your income exceeds the limit, the benefits your spouse and children receive based on your work history will also be reduced.
  • The income limit and rules also apply to the labor income of people who receive benefits for spouses and children, and survivors.

Your monthly Social Security payments may be subject to federal, state, and local income taxes. If you collect benefits and labor income, you may want to increase your withholding to avoid a high tax bill and penalties in April.

So, does my Social Security payment increase if I continue to work after Retirement?

It all depends on your current income and how much you've earned during your working life.

As the basis for your benefit calculation, Social Security uses an average of your lifetime monthly income, which is calculated using the 35 years in which you earned a higher salary, and then adjusted to reflect historical salary trends.

Even if you've already applied for your benefits, Social Security recalculates this average each year, considering any new income from your job. If your current income falls in the 35 years in which you earned a higher salary, your monthly average will increase, and your benefits could also go up.

But Remember:

As mentioned earlier, if you continue to work, your benefits may be affected if you applied for Social Security early. In the years before you reach full retirement age (currently 66 years and 2 months and gradually increasing to 67), you're subject to a Social Security income test, which reduces your benefits if your income exceeds a set limit ($18,960 in 2021).

The limit increases in the year you reach full retirement age, and when you reach more than that age, the limit disappears.

Can I cancel Social Security benefits and later reinstate them to earn a higher payment? 

Yes, but again, there are a few limits as you will learn. Generally, if you just started receiving your retirement benefits, you may be eligible to apply for the cancellation of Social Security payments.

But why would you want to cancel Social Security Payments? This could be that you applied for your Social Security earlier, say at the age of 62, because you really needed the money –but then had to accept reduced payment. Then later you receive unforeseen money: a new job offers with a higher salary or an inheritance. This then means you can now afford to wait for longer and collect higher profits as Social Payments.

Social Security will allow you to cancel your original application for retirement benefits only once, and this should be within 12 months of the date you started collecting benefits. To cancel, you need to complete Social Security Form SSA-521 and have it delivered to your Social Security Office.

Once you successfully apply for cancellation, Social Security will reverse everything and treat the case as if you never applied for the benefits, but you will have to pay back the money you’ve received so far: including the monthly retirement payments, and any other benefits charged by your children or spouse.

If you've been receiving Social Security benefits for over a year, the cancellation period is over. However, when you reach full retirement age, you can apply for a suspension of benefits. During a suspension, you accumulate deferred retirement credits, which increase your monthly retirement benefits when you collect them again.

Bottom line 

Can you work and still collect your Social Security Payments? Yes, however, as, outlined above, part of your benefit payments may be withheld if you earn above a certain limit. Once you attain the full retirement age, you don’t get penalized in any way if you work and receive your Social Security payments at the same time.

It is recommended to speak with a financial professional to get more detailed answers to your individual situation.