Can You Still Work and Get Social Security?

If you're pondering your financial future as you reach retirement age, you might be asking, "Can you still work and get Social Security?" The answer is yes, you can work and still receive Social Security benefits. However, it's important to understand how working will impact your benefits, especially depending on your age and earnings. Let’s explore the various aspects of working while receiving Social Security benefits to help you make informed decisions.

Social Security Basics

Social Security is a federal program that provides financial assistance to retirees, disabled people, and survivors of deceased workers. The amount of benefits you receive depends largely on your earning history, the age at which you start receiving benefits, and other factors like your work status during retirement. Here's a breakdown of how working affects your benefits based on the rules set by the Social Security Administration (SSA).

Full Retirement Age (FRA)

Your Full Retirement Age (FRA) is the age at which you qualify to receive 100% of your Social Security retirement benefits. The FRA ranges from 65 to 67, depending on your birth year. If you choose to start taking benefits before your FRA, the benefits are reduced, and engaging in work might affect these benefits differently than if you start at your FRA.

Table 1: Full Retirement Age based on Birth Year

Working Before Full Retirement Age

If you choose to receive Social Security benefits before reaching your FRA and continue working, your benefits may be reduced. The Social Security Earnings Test dictates how much your benefits will be cut. Here's how it works:

• Under Full Retirement Age: If you are under the FRA for the entire year, $1 is deducted from your benefits for every $2 you earn above the annual limit. For 2023, this limit is $21,240.
• The Year You Reach FRA: In the year you reach your FRA, $1 is deducted from your benefits for every $3 you earn over a different limit. In 2023, this limit is $56,520. These deductions apply only to earnings before the month you reach FRA.

Working After Full Retirement Age

Once you reach your FRA, you can work and earn as much as you like without any reduction in your Social Security benefits. Any benefits withheld because of earnings before reaching FRA are recalculated to provide higher monthly benefits once you reach FRA. This recalibration reflects the period your benefits were withheld.

Delaying Benefits and the Impact on Income

If you delay receiving Social Security benefits beyond your FRA, your benefits will increase until you reach age 70. This increase is calculated based on the Delayed Retirement Credits system, which adds approximately 8% more per year of delay. This can be especially beneficial if you plan to work during these years without receiving benefits, as it maximizes your future monthly payout.

Impact of Working on Taxation of Benefits

A significant consideration when deciding to work and receive Social Security benefits is the taxation aspect. Your benefits could be taxed if your combined income (from work, Social Security, and other sources) exceeds certain thresholds. The IRS defines "combined income" as your adjusted gross income, nontaxable interest, and half of your Social Security benefits.

• Individual Filers: If combined income is between $25,000 and $34,000, up to 50% of your Social Security benefits may be taxable. If it exceeds $34,000, up to 85% of your benefits might be taxable.
• Joint Filers: For combined income between $32,000 and $44,000, up to 50% of benefits could be taxed. Above $44,000, up to 85% may be taxable.

Balancing Work and Social Security

Deciding whether to work and when to claim Social Security benefits requires careful consideration of your personal circumstances, including health, financial needs, and long-term plans. Consider these strategies to help balance work and Social Security:

1. Analyze Financial Needs: Evaluate your financial needs in the context of retirement, healthcare costs, and lifestyle desires.

2. Consult a Financial Advisor: A financial advisor can help personalize decisions based on your earnings, retirement plans, and needs.

3. Consider Work Flexibility: Assess the possibility of transitioning to part-time work to maintain income without significantly impacting benefits.

4. Calculate Tax Implications: Look at how your work income might lead to taxed benefits and reduce unnecessary surprises in your financial planning.

Special Considerations for Self-Employed Individuals

Self-employed workers follow the same earnings test rules as regular employees. However, "net earnings" (after business expenses) determine their income. Self-employed individuals additionally pay both employer and employee portions of Social Security taxes, which is a total of 12.4%.

Real-World Scenario

Consider Jane, who is 63 and planning early retirement but wants to supplement her income with a part-time job. If Jane earns $25,000 annually from her job, $3,760 (her excess over the limit) would result in a reduction of $1,880 in benefits for that year before tax implications. Careful budgeting and understanding of how Social Security will be affected can help her navigate potential reductions.

Frequently Asked Questions

1. What happens if I have high earnings at an older age? If you work close to retirement age with high earnings, your Social Security benefits could be higher due to the years with increased income, which may replace years of lower earnings in your calculation.

2. Is there a point where continuing to work doesn’t improve benefits? After reaching age 70, delaying benefits ceases to accumulate extra credits, so it might not be advantageous to postpone unless needed.

3. Does income include assets or interest? Only earned income (wages, salary, self-employment income) counts towards potential reductions in benefits. Investment income does not.

Working while receiving Social Security benefits is an option with various approaches to manage reductions and taxation. Each individual's optimal choice depends on personal financial circumstances and retirement goals. As you consider your options, utilizing resources, consulting experts, and contemplating long-term impacts can provide a path toward a fulfilling and financially secure retirement.