Key Points
Once you retire, there’s a good chance Social Security will become a meaningful income source for you. Hopefully, though, it won’t be your only income source.
Social Security will replace about 40% of your pre-retirement wages if you earn an average salary. Most seniors need about twice that sum to cover their costs in retirement without too much stress. So it’s important to have income outside of those monthly benefits.
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One option you may be considering is working part-time in retirement, whether on a preset schedule or through the gig economy. But you may be worried that holding down a job will cause you to lose out on Social Security permanently.
That’s actually a big misconception. And it’s an important one to clear up, since there can be many benefits to continuing to work as a retiree.
How the Social Security earnings test works
Once you reach full retirement age, which is 67 for people born in 1960 or later, you’re entitled to collect your monthly Social Security benefits without a reduction. At that point, you can also earn any amount of money from a job without having to worry about a negative impact on your monthly benefits.
The earliest age to claim Social Security is 62, though. Filing before full retirement age results in reduced benefits. And if you continue work, it can also result in withheld benefits, depending on how much money you make.
Each year, people who collect Social Security while working before full retirement age are subject to an earnings test whose limits change annually. This year, the general earnings-test limit is $23,400. For earnings that exceed that threshold, $1 in Social Security is withheld per $2 of income.
For those reaching full retirement age by the end of 2025, the earnings-test limit is $62,160. If earnings exceed that threshold, $1 in Social Security is withheld for every $3 of income.
If you’re collecting Social Security before full retirement age and are interested in working, you may be inclined to say no to a job for fear that you’ll lose out on benefits. But one thing you must know is that withheld benefits do not equal forfeited benefits.
If you have some of your Social Security withheld for exceeding the earnings-test limit, once you reach full retirement age, you’ll get that money back in the form of larger monthly checks. The only Social Security you’ll forgo permanently is the larger monthly benefit you could’ve gotten by waiting until full retirement age.
Don’t let the earnings test stop you from working
There are plenty of good reasons to hold down a job as a retiree. Aside from the income (which you might need if you don’t have much retirement savings), having a job to go to could help you anchor weeks, establish a routine, and give you an opportunity to interact with others. It could also be a good thing for your mental and physical health.
It’s important to understand how Social Security’s earnings test works, and to recognize that benefits impacted by it are not lost forever. You don’t want to pass up an opportunity to work as a retiree when that’s good for you because of misinformation.
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