How Work Affects Your Social Security Benefits

After toiling in the workforce for many years, Social Security benefits are one of the few seemingly guaranteed comforts of retirement. But what many people don't realize is there are many factors that can negate some of Uncle Sam's dollars.  

 

Your income can reduce the amount of your benefits, depending on how much you earn, how old you are and what benefits you're eligible to receive. See how your benefits play out before you take that extra part-time job or opt for early retirement.

 

Working After Full Retirement Age

No law prevents you from working while you are receiving Social Security benefits. In fact, many people choose to keep working after reaching full retirement age, either because they want to or because they have to. If you wait until full retirement age — between 65 and 67 depending on the year of your birth — to take Social Security, you can keep all of your benefits no matter how much you earn.

 

Working in Early Retirement May Reduce Benefits

You can start taking Social Security retirement benefits beginning at age 62, although your monthly check will be less than if you wait until full retirement age. It's a good idea to think through your long-range financial plan before jumping in. 

 

Early retirement benefits are further reduced if you continue to work and earn above a certain annual threshold amount ($15,720 in 2015). You'll lose $1 in benefits for every $2 you earn above the threshold amount. 

In the year before you are eligible for full retirement benefits, the formula changes. The threshold amount of allowable annual income rises significantly — to $41,880 in 2015 — and your benefits are only reduced by $1 for every $3 you earn above the threshold amount.

 

What's Considered Income?

You may wonder exactly what counts as income to reduce your Social Security benefits before full retirement age. Well, if you work for someone else, your wages and bonuses are counted as income, obviously. 

 

What you may not know is that any accumulated sick time or vacation pay is also counted. Other government benefits you may receive, interest on savings, pensions and capital gains are not considered income. Lastly, if you work for yourself, your net — not gross — income is counted for Social Security purposes.

 

Recouping Benefit Reductions

If your early retirement benefits are reduced because of the amount of your earnings, you may get some of that "lost" money back. When you reach full retirement age, the Social Security Administration recalculates your benefits to take into account those months in which you received less than full benefits. 

 

In addition, if your latest year of earnings turns out to be one of your highest-earning years, the SSA will recalculate the amount of your benefits based on the higher earnings

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