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Social Security is an important financial lifeline for many seniors, providing a guaranteed source of income as they age. But the day they first file for Social Security benefits may not necessarily coincide with their last day of work.
There are lots of reasons why older adults might continue to earn an income after their Social Security benefits kick in — and many do.
According to the latest Pew Research Center analysis, roughly 19 percent of adults ages 65 and older are employed today, up from 11 percent in 1987.1
Advances in medical technology have helped fuel the trend. Seniors today are generally healthier and live longer than their parents did, so they may be physically able to extend their careers and motivated to save for a longer retirement.2
“In our practice, we have seen a significant increase in our clients working past age 65, especially if doing so allows them to maintain quality private health insurance benefits,” said Jason Sebell, a wealth management professional with Baystate Financial in Boston, Massachusetts. “Many had anticipated that they would retire early in their 60’s, like their parents had, but are sadly realizing that to maintain their lifestyle in perpetuity, more years in the workforce will be necessary.”
Are there consequences to working while you collect Social Security?
Working while you collect Social Security retirement or survivor’s benefits, however, can potentially result in a lesser benefit depending on your age and how much you earn. In certain cases, it can even reduce your benefit to zero.
“We worry that many older Americans may not fully understand the implications of working while claiming Social Security benefits,” said Bryan Bibbo, president and Chief Financial Officer of JL Smith Holistic Wealth Management in Avon, Ohio. “Especially the complexities around pulling Social Security prior to their full retirement age and earning W-2 or self-employment income.”
Your full retirement age is the age at which you are entitled to collect your full Social Security benefit. If you were born on Jan. 2, 1960 or later, your full retirement age is 67. (Learn more: When should I apply for Social Security retirement benefits?)
Here’s a closer look at how your Social Security benefit may be affected if you’re still earning an income:3
- If you are younger than full retirement age for the entire year, your Social Security benefit will be reduced by $1 for every $2 you earn above an annual income limit. That limit is $22,320 for 2024.
- In the year you reach full retirement age, your benefit will be reduced by $1 for every $3 you earn above a different annual income limit — $59,520 in 2024 — until the month you reach full retirement age.
- Your Social Security benefit is no longer reduced beginning with the month you reach full retirement age, regardless of how much income you earn.
When calculating the effect of earnings on your Social Security benefit, the government considers only the wages you make from your job or your net earnings if you are self-employed. That includes bonuses, commissions, and vacation pay when earned if you are working for someone else or when paid if you are self-employed. Your pensions, annuities, investment income, interest, Veterans benefits, or other government or retirement benefits are not factored into the earnings test formula.
You may receive a bigger benefit later if your Social Security checks are withheld because of work
It is important to note that all is not lost if some or all of your Social Security retirement benefits are withheld due to your earnings. In many cases, the SSA will recalculate your benefit when you reach full retirement age and pay you a higher monthly benefit thereafter to account for the prior months in which benefits were withheld.
Spouses and survivors who receive benefits because they have children who are minors or have disabilities in their care, don’t receive increased benefits at full retirement age if benefits were withheld because of work.
Special rules
The rules for calculating Social Security benefits while working are complex.
For example, different rules apply if you work outside the United States, in which case you should contact the SSA directly.
There are also special rules for seniors who first file for benefits mid-year but have already earned more than the annual earnings limit. The “special earnings limit rule” may permit the SSA to pay your full Social Security check for any whole month it considers you retired, regardless of your yearly earnings. If you:
- Are under full retirement age for the entire year, you are considered retired in any month that your earnings are $1,860 or less and you did not perform substantial services in self-employment. (Substantial services in self-employment means that you devote more than 45 hours a month to a business or between 15 and 45 hours to a business in a highly skilled occupation.)
- Reach your full retirement age in the year you file for benefits, you are considered retired in any month that your earnings are $4,960 or less and you did not perform substantial services in self-employment.
The SSA offers a retirement earnings test calculator to help you determine whether your Social Security benefit may be affected if you work. Before making any decisions related to your Social Security benefits, it may be wise to seek guidance from a financial professional who is well-versed in Social Security claiming strategies.
Will my Social Security benefit be taxed?
Another potential drawback to taking Social Security benefits while working is the tax implications, said Bibbo.
According to the SSA, up to 85 percent of your Social Security benefits may be subject to taxation if you:4
- File a federal tax return as an individual and your combined income exceeds $34,000.
- File a joint tax return and you and your spouse have a combined income of more than $44,000.
Combined income includes your adjusted gross income, tax exempt interest income, and half of your Social Security benefits.
Married couples who file a separate tax return will typically have to pay taxes on their Social Security benefit, the SSA notes.
“Many older Americans may not have a comprehensive understanding of these factors,” said Bibbo. “This lack of awareness can lead to financial surprises and suboptimal decisions regarding their retirement and benefits. Therefore, it's wise for older workers to seek professional financial advice and thoroughly understand the rules and implications of working while claiming Social Security benefits.”
Why work if you are collecting Social Security?
So, why not simply delay collecting Social Security if you are still working? After all, when you delay benefits beyond your full retirement age you permanently increase the size of your future benefit. (The reverse is true, too. If you begin collecting Social Security at the earliest opportunity, age 62, your monthly benefit will be permanently reduced to reflect the additional years you will be receiving a benefit.)
There are several potentially good reasons to keep working while collecting Social Security benefits. Many seniors:
- Need supplemental income.
- Wish to keep their employer health insurance.
- Hope to increase their future Social Security benefit.
- Use new income to delay withdrawals from their pre-tax retirement accounts.
- Wish to remain socially engaged and productive. (Related: 10 ways to find meaning and purpose in retirement)
According to AARP, 1 in 5 Americans age 50 and older have no retirement savings and more than half (61 percent) are worried they will not have enough money to support themselves in retirement.5
“If additional income is needed to cover living expenses, healthcare costs, or to support dependents, continuing to work while receiving Social Security benefits can help bridge the financial gap,” said Bibbo.
When you collect Social Security retirement or survivors benefits while working you may also increase the size of your future monthly benefit.
The SSA reviews your wages every year. If the prior year was one of your highest earnings years, your benefit will be recalculated and you may receive an increase in pay — retroactive to January of the year after you earned the higher income.
Continuing to earn an income after filing for Social Security benefits may also position you financially to delay withdrawals from your tax-deferred retirement plans, such as your 401(k) and IRA — at least until required minimum distributions kick in. at age 73. By keeping those dollars invested longer, they could potentially continue to produce compounded growth, which may boost the size of your nest egg and reduce the risk of outliving your savings. (Learn more: Turning 73? Required minimum distributions explained)
Lastly, many who continue working while collecting Social Security do so because they find purpose in their career. Studies suggest that older adults who maintain social connections and remain productive may be more likely to stave off depression and anxiety, maintain physical health, and enjoy a healthy marriage.
Conclusion
It is possible to collect Social Security benefits while working, but the implications for your financial future can be profound.
By working closely with a trusted financial professional, you can help ensure that you make informed decisions that help maximize the size of your future benefit.
Discover more from MassMutual…
Social Security spousal and survivor benefits: Different and not equal
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1 Pew Research Center, “The growth of the older workforce,” Dec. 14, 2023.
2 U.S. Bureau of Labor Statistics, “Table A-4. Employment status of the civilian population 25 years and over by educational attainment,” June 7, 2024.
3 Social Security Administration, “What happens if I work and get Social Security retirement benefits?” March 13, 2024.
4 Social Security Administration, “Must I pay taxes on Social Security benefits?” Oct. 14. 2022.
5 AARP, “AARP Financial Security Trends Survey, January 2024: Sense of Financial Security Holds Steady, Optimism Up.”