It is a general belief that Social Security is for retirees who’ve left the workforce, but that is not entirely true. Social Security’s objective is to be a major source of your retirement income, but you can indeed collect Social Security while working. It is, however, not necessarily recommended because it may reduce your benefits for a while.
Thus, it is very important that you understand the ins and outs of Social Security benefits while you are working. It will help you to make informed decisions about your retirement. So, in this article, we will discuss if you can collect Social Security while working.
As noted above, you can collect Social Security while working, but there is a catch. There is an earnings limit if you haven’t reached your full retirement age (FRA). So, if you earn more than this limit, the SSA (Social Security Administration) will withhold half of your benefits.
Your full retirement age is 66, or between 66 and 67, or 67, depending on your birth year. The FRA is 66 if you were born from 1943 to 1954, between 66 and 67 if you were born from 1943 to 1959, and 67 if you were born in 1960 or later.
In 2023, the SSA withholds benefits at the following rates:
- $1 for every $2 of income you earn above $21,240 ($1,770 per month) until you reach FRA. Suppose you are 65 and earn $22,000. It means that you earn $760 above the earnings limit. So, the SSA will withhold $380 from your benefits.
- $1 for every $3 of income over $56,520 in the year you reach FRA until the month before you are eligible for the full benefits. Suppose you reach FRA in December 2023 and earn $62,000. In this case, the SSA will reduce your benefits by around $1,827 from January to November.
Benefits are only temporarily withheld
The benefits that SSA withholds if your income exceeds the limit is only temporary. The SSA returns the withheld benefits once you reach FRA. So, if you are no longer working after your FRA, you receive bigger Social Security payments making up (though partly) for the salary.
Those working lower-wage jobs benefit the most if they collect Social Security while working. Collecting benefits can supplement your income if you have a lower-wage job. It means that if your income is below the limit, you will get your full benefits and your salary as well.
As noted above, the SSA doesn’t withhold the benefits permanently. So, if you are not working after you reach your full retirement age, you still get your full benefits plus those held previously. In a way, this compensates for the lost salary income.
Another advantage of collecting Social Security while working is it could help boost your benefits. The SSA uses the highest-earning 35 years of your career to calculate your monthly Social Security benefits.
If you earned a high salary for 35 years before claiming benefits and are now earning a low salary, continuing to work won’t increase your benefits. On the other hand, if you have not worked for the full 35 years, then any salary you draw will help you to increase your benefits.
It wouldn’t be wrong to say that the more money you make now compared to what you earned before, the more chances of an increase in your benefits. Many who receive disability benefits don’t have 35 years of earnings history. So, any earnings will help them to boost their benefits.
Talking about the disadvantages, the biggest, of course, is that you receive a reduced benefit until your FRA. Another drawback of collecting benefits and your salary is that it could push you into a higher tax bracket.
Also, a higher income could make part of your Social Security payments taxable. If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits is more than $25,000 ($32,000 for couples filing jointly), you could end up paying an income tax on up to 50% of your Social Security benefits.
Up to 85% of your benefits are taxable if your combined income is more than $34,000 ($44,000 for couples).
How to report earnings from work to the SSA
It is very important that you regularly report your work earnings to the SSA, as it will help the agency calculate your benefits accurately. Reporting your earnings to SSA is easy and there are many ways to do it.
You can contact your local SSA office and give them an estimate of your expected gross income for the year. Also, if you are working and receiving benefits, you will receive a notice every fall asking you an estimate of your income for the following year. Replying to this notice will help you to avoid any hiccups later.
If you fail to notify the SSA about your earnings, the SSA will continue sending the full benefits without any withholding. Not informing SSA could result in issues later, as the SSA will have no information about whether you are working until the IRS processes your W-2s. The SSA has the authority to reduce or freeze your benefits depending on your earnings over the limit and how long you were working before your record was adjusted.
