Picking up a part-time job in retirement is an easy way to improve your retirement lifestyle. However, your earnings could affect your benefits based on your age and income. If you start a new job after you begin receiving Social Security benefits, the payments you’re eligible for could change. Here’s what to know before starting a retirement job:
— Consider your Social Security full retirement age
— Your earnings while receiving Social Security
— The Social Security earnings limit changes the year you reach full retirement age
— Social Security payments are only withheld temporarily
— Working can make your Social Security benefit taxable
— Working while collecting Social Security benefits
Consider Your Social Security Full Retirement Age
Once you reach full retirement age, there is no limit on how much you can earn while collecting Social Security payments. Your full retirement age is based on the year you were born. The full retirement age for anyone born between 1943 and 1954 is 66 years old. The number increases by months for those born between 1955 and 1959. Individuals born in 1960 or later have a full retirement age of 67.
“Your full retirement age is one of those critical dates in retirement that you need to know, especially when it comes to Social Security,” said Andrew Wood, a retirement planning advisor with Dan White & Associates in Middletown, Delaware, in an email.
If you work while receiving benefits before your full retirement age, “you could be impacted by the earnings test, which could reduce or even eliminate the checks you’re planning to receive,” Wood said.
[Read: What Is the Average Retirement Age in the U.S.?]
Your Earnings While Receiving Social Security
If you opt to work while receiving Social Security before your full retirement age, you will only be able to receive a certain income level before your Social Security benefit is temporarily reduced. The Social Security earnings limit is $1,860 per month or $22,320 per year in 2024 for someone who has not reached full retirement age. If you earn more than this amount, you can expect to have $1 withheld from your Social Security benefit for every $2 earned above the limit.
For example, if you are 65 years old, receive $2,500 in Social Security benefits every month and have a job that pays $2,000 monthly, you are over the income limit of $1860 by $140 each month. During a year, you will receive $24,000 from the job, which is $1,680 more than the annual earnings threshold of $22,320. As a result, $1 out of every $2 above the threshold will be withheld. In this case, $70 will be withheld every month from your Social Security checks.
In this scenario, you can expect to receive $2,430 each month from Social Security. When you turn your full retirement age, your payments will be recalculated to give you credit for the withheld portion of your benefit.
[Related:Reasons to Take Social Security Early at Age 62]
The Social Security Earnings Limit Changes the Year You Reach Full Retirement Age
There’s a different Social Security earnings limit for those turning their full retirement age in 2024, and the penalty is lower for earning too much. If you reach your full retirement age in 2024, the limit on your earnings for the months before your full retirement age is $59,520. If you earn more than $4,960 per month before you reach full retirement age, $1 will be withheld from your benefit for every $3 in excess earnings.
For example, if you will reach your full retirement age in 2024 and you currently receive $2,500 a month from Social Security along with $5,500 every month from a job, part of your benefit will be temporarily withheld. Your income surpasses the Social Security earnings threshold by $540. Your benefits will be reduced by around $180 each month since $1 out of every $3 earned above the limit will be withheld until you turn your full retirement age.
Social Security Payments Are Only Withheld Temporarily
If you work while receiving Social Security benefits before reaching full retirement age and see a change in benefits, the adjustment is only temporary. “This is not a permanent reduction,” said Kris Jerke, president of Ascend Financial in Sioux Falls, South Dakota, in an email. “You will receive credit for reduced benefits once you reach full retirement age.”
You could receive larger Social Security payments later that reflect your continued earnings. “This is a great payout to consider if you are still healthy and able to work during the early retirement years,” said Jared Weitz, CEO of United Capital Source in Garden City, New York, in an email.
Working Can Make Your Social Security Benefit Taxable
If you are receiving Social Security benefits, you’ll want to keep in mind that any income from working, withdrawals from traditional IRAs or 401(k)s and dividends and interest on your investments can contribute to making part of your Social Security payments taxable.
If the sum of your adjusted gross income, nontaxable interest and half your Social Security benefit is higher than $25,000 as an individual and $32,000 as a married couple, you might have to pay income tax on up to 50% of your Social Security payments. If these income sources are greater than $34,000 ($44,000 for couples), up to 85% of your Social Security benefit can be taxable.
[READ: What to Know About the Bill to Repeal Social Security Taxes]
Working While Collecting Social Security Benefits
You can work and collect Social Security benefits simultaneously. However, if you are younger than your full retirement age, part of your Social Security payments may be temporarily withheld if you earn too much. Once you turn your full retirement age, there is no penalty for working while collecting Social Security benefits, and your payment will be increased to give you credit for benefits that were withheld in the past.
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What Happens if You Work While Receiving Social Security? originally appeared on usnews.com
Update 10/22/24: This story was published at an earlier date and has been updated with new information.
