Working while receiving Social Security benefits can affect your payments in different ways depending on your age, how much you earn, and the type of benefits you receive.

For individuals who are under full retirement age (FRA), Social Security applies an earnings limit. If you earn more than the annual threshold, part of your benefits may be temporarily withheld.

For example, in 2024, if you are under FRA and earn more than $22,320 per year, Social Security will withhold $1 in benefits for every $2 earned above that limit.

Although this can reduce the amount you receive in the short term, it’s important to understand that these reductions are generally not permanent. Once you reach full retirement age, Social Security may recalculate your benefit and increase it to account for the months in which benefits were withheld.

Example: How Working Can Reduce Benefits Before Full Retirement Age

Let’s look at a simple example:

John is 62 years old and has not yet reached full retirement age. He receives a monthly Social Security benefit of $1,200 and earns $30,000 per year from part-time work.

Step 1: Calculate Earnings Above the Limit

John’s annual earnings: $30,000
2024 earnings limit: $22,320

Excess earnings:
$30,000 − $22,320 = $7,680

John earned $7,680 over the limit.

Step 2: Calculate the Benefit Reduction

Social Security withholds $1 for every $2 earned above the limit.

$7,680 ÷ 2 = $3,840

So, Social Security will withhold $3,840 in benefits for the year.

Step 3: Estimate the Monthly Impact

John’s annual benefit without reduction:
$1,200 × 12 = $14,400

If $3,840 is withheld over the year:

$3,840 ÷ 12 = $320 per month

Step 4: Determine the Adjusted Monthly Benefit

$1,200 − $320 = $880

Result: John would receive $880 per month instead of the full $1,200, due to his excess earnings.

• Important note: Social Security often withholds benefits by holding back entire monthly checks rather than reducing each payment evenly. This example is simplified to make the math easier to understand.

What If You Are Above Full Retirement Age?

For individuals who are at or above full retirement age, there is no earnings limit.

That means you can continue working and earn as much as you want without reducing your Social Security benefits. This can be especially helpful for retirees who:

• Need extra income to cover living expenses
• Want to remain active in the workforce
• Prefer to delay fully retiring

In addition, continuing to work may even increase your future Social Security benefit if your current earnings replace one of your lower-earning years in the formula Social Security uses to calculate benefits. Since benefits are based on your highest-earning 35 years, higher earnings later in life can sometimes boost your monthly payment.

How Working While Receiving Social Security Can Affect Your Taxes

Even if working does not reduce your Social Security benefit directly, it can still affect your tax liability.

If your combined income exceeds certain thresholds, a portion of your Social Security benefits may become subject to federal income tax. Combined income generally includes:

• Your adjusted gross income (AGI)
• Nontaxable interest
• Half of your Social Security benefits

For higher-income individuals, this means that working while receiving benefits could lead to:

• More taxable income overall
• Federal taxes on part of your Social Security benefits
• A smaller net financial gain from working

As a result, while earning income during retirement can be beneficial, it’s important to look at the full financial picture, including how additional earnings may affect both your monthly benefits and your tax situation.

Final Thoughts

Working while receiving Social Security benefits can be a smart financial move, but the impact depends largely on when you claim benefits and how much you earn.

• Before full retirement age: Your benefits may be temporarily reduced if you earn above the annual limit.
• At or after full retirement age: You can work without any reduction in benefits.
• At any age: Additional earnings may increase your tax burden and could make part of your benefits taxable.

Contact Us Today

Understanding these rules can help you make more informed decisions about when to claim benefits and whether continuing to work aligns with your financial goals. For personalized guidance, contact us today at 203-489-0612 to learn more.

Written by: Nikko Ardito