Living off of Social Security retirement does not always yield a decent standard of living and for this reason, many people continue to work after they begin to receive early retirement benefits. Individuals are allowed to work and earn a small amount of money while receiving benefits without a reduction of benefits.
Working While Receiving Social Security Benefits
For the year 2017, the allowable amount you can earn with getting a reduction is $16,920 ($1,410 per month), but the amount increases regularly. If you collect early retirement benefits and earn over that threshold amount, your Social Security retirement benefits will be reduced by $1 for every $2 you earn over the limit. This reduction in benefits applies only to the years you are working; it will not have a permanent effect on the benefits you’ll receive when you stop working or when you reach full retirement age (FRA), whichever is sooner. (Once you reach full retirement age, there is no reduction in benefits no matter how much you earn.)
The way Social Security withholds your monthly benefits is not at all straightforward, however. Rather than reducing each month's benefit by a certain amount, Social Security will withhold the entire month's benefit for some months until the reduction is paid off. For the details, read Social Security's pamphlet on How Work Affects Your Benefits. You can also use Social Security's earnings test calculator to see how much your reduction will be and when Social Security will withhold your benefits.
Reduction During Year You Reach Full Retirement Age
In the 12 months before you reach your full retirement age (66 right now), a higher earnings limit applies. You can earn up to $44,880 ($3,740 per month) in the year you reach FRA. But if you earn more, you'll lose $1 for every $3 you earn over the limit in any month.
If you are self-employed, Social Security might not pay you your monthly benefit in any month in which you worked in your business more than 45 hours during the month (or between 15 and 45 hours in a highly skilled occupation).
Getting Back the Amounts Deducted
When you reach full retirement age, Social Security will recalculate the amount of your monthly benefits to add on the amount you lost due to working. The amount you lost, however, will be added back over a period of up to 15 years, so the increase in your monthly benefit will be small. When you reach full retirement age, Social Security will send you a letter telling you how much the increase in your benefit amount will be.
Questions for Your Attorney or Financial Advisor
- How do I structure my family business so that I won't have problems with Social Security if my spouse is still working in the business?
- Does it make sense for me to collect early retirement benefits and work?