How Will Working Affect Social Security Benefits?

According to a recent survey, 73% of current workers stated that they plan on working for income in retirement.¹ This raises an interesting question: how does working affect Social Security benefits?

The answer requires an understanding of three key concepts: full retirement age, the earnings test, and taxable benefits.

Full Retirement Age

According to the Social Security Administration (SSA), most workers don’t face an “official” retirement date. The government program gives individuals the option to start receiving benefits as early as age 62 or delay them until age 70.²

“Full retirement age” refers to the age at which individuals become eligible to receive 100% of their Social Security benefits. For those born in 1960 or later, the full retirement age is 67 years old.

Earnings Test

Electing to receive your Social Security benefits before reaching full retirement age brings into play the earnings test. The SSA deducts $1 in benefits for every $2 that a working individual earns above the annual limit if they have not yet reached full retirement age. In 2024, the income limit is $22,320.³

During the year in which an individual reaches full retirement age, this benefit reduction amounts to $1 for every $3 in earnings. In 2024, the limit will be $59,520 before the month the worker reaches full retirement age.⁴

As an example, let’s assume that a worker begins receiving their benefits during the year that they reach full retirement age. In that year, if the worker earns $65,000 before reaching full retirement age, their annual Social Security benefit would be calculated as follows:

In this case, the individual’s annual benefits would be reduced by $1,826.67 because they are continuing to work.

Taxable Benefits

Once an individual reaches full retirement age, their Social Security benefits will not be reduced regardless of how much they earn. However, it is important to note that benefits are still taxable.

For instance, if you were to file a joint return with your spouse and both of you are past the full retirement age, your total combined income will determine the income tax liability. If the combined income amount is between $32,000 and $44,000, then up to 50% of Social Security benefits could be taxable. If that amount exceeds $44,000, then up to 85% of benefits may be subject to income taxes.⁵

There are many factors to consider when evaluating Social Security benefits. Understanding how continuing to work in retirement may affect total benefits can help you put together a strategy that allows you to make the most of all your retirement income sources – including Social Security.

¹EBRI.org, 2023
²SSA.gov, 2023
³SSA.gov, 2023
⁴SSA.gov, 2023
⁵SSA.gov, 2023