Some people go from working full-time to kicking off retirement and not working at all.
That "hard stop" approach might work for some folks. But for others, easing into retirement with a part-time work schedule ends up being a better bet.
And then there are also those who opt to continue working in retirement, whether to keep busy or supplement their senior income. Some retirees, in fact, might go several years without working only to take a job due to an emotional or financial need.
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One of the nice things about Social Security is that seniors are allowed to receive benefits while also earning income from a job. But there are rules to be aware of in that situation. And data from the Social Security Advisory Board finds that many people do not understand the rules as they relate to working and collecting Social Security at the same time.
It's important to know how the system works
The Social Security Advisory Board reports that many older Americans follow a non-traditional retirement path that involves part-time work or a return to work before permanently exiting the labor force. Meanwhile, half of those it surveyed who returned to work reported collecting Social Security before doing so. And of these people, 40% had not yet reached full retirement age (FRA) when they returned to work.
Why is that important? FRA is the age at which you're entitled to your complete monthly Social Security benefit based on your personal wage history. That age is 66, 67, or somewhere in between, depending on year of birth.
It's possible to sign up for Social Security as early as age 62. However, many people are generally aware that claiming Social Security prior to FRA results in a permanently reduced monthly benefit.
What a lot of people aren't aware of, though, is that there are earnings-test limits for those who work and collect Social Security at the same time prior to FRA. And the aforementioned report found that between 25% and 50% of prospective retirees don't know that exceeding that limit could result in withheld Social Security income. Furthermore, many people don't understand that withheld benefits in that situation are returned later in life.
Breaking down the rules
The rules with regard to working and receiving Social Security at the same time can be a little confusing. So if that's a situation you may be looking at this year, here's a breakdown of what you should know:
- Once you reach FRA, you can earn any amount of money from a job without it impacting your Social Security benefits.
- If you're below FRA and won't be reaching FRA this year, you can earn up to $22,320 without having your benefits withheld. From there, you'll have $1 in Social Security withheld per $of earnings.
- If you will be reaching FRA this year, you can earn up to $59,520 without it impacting your Social Security benefits. From there, you'll have $1 in Social Security withheld per $3 of earnings.
- Withheld Social Security income is adjusted back into your monthly benefits once you reach FRA so you don't permanently forgo that money.
And that's really the gist of it. However, these are important points to know for anyone looking to work and collect Social Security at the same time.
Also, do be aware that the aforementioned earnings-test limits are applicable to 2024 only. Those limits tend to adjust on an annual basis to account for inflation.
All told, Social Security is a complex program, and working while receiving benefits opens the door to even more potential complications. Knowing the rules will help you better manage your financial situation as a retiree. It will also help you better plan for your workforce exit, whether it's an immediate one or a gradual one.
