How Much Can I Earn Before Hurting My Social Security Benefit?

Thoughtful retiree
Photo by fizkes / Shutterstock.com

Welcome to our “Social Security Q&A” series. You ask a question about Social Security, and a guest expert answers it.

You can learn how to ask a question of your own below. And if you would like a personalized report detailing your optimal Social Security claiming strategy, click here. Check it out: It could result in receiving thousands of dollars more in benefits over your lifetime!

Today’s question comes from Roland:

“I turn 66 on Sept. 15. If I retire on Sept. 1, is that considered my full retirement age? Also, how much can I earn this year — while retiring in the middle of the year — and not hurt my Social Security payments?”

The value of waiting to claim

Roland: In response to your questions, let me begin by first pointing out that there is a key difference between retiring and claiming benefits. They do not have to be done at the same time! These are two separate decisions. If you can delay the claiming decision beyond your full retirement age, you can greatly increase monthly benefits.

For example, if you wait until age 70 to claim, your benefit will be 32% higher than the benefit you will receive if you claim at full retirement age. Whether claiming at full retirement age or claiming at 70 is the optimal choice depends on your circumstances. The best way to determine your optimal strategy is to get a report from Social Security Choices.

Of course, how much flexibility you have in delaying claiming depends on what financial resources you have to tide you over until deciding to claim. On the one hand, you may have sufficient savings. In this case, you should consider how low interest rates are today, and how little return you get in a savings account. Given that reality, spending savings now so you can claim later can lead to much higher income from Social Security in the future.

If you do not have sufficient savings, you are probably part of a large group of people who do not have the option to delay claiming unless they continue working. This brings me to your second question: What is the effect of continuing to work on your Social Security benefits?

First, continuing to work may — and I say “may” — increase your future benefits. This will happen if your present income that is subject to Social Security taxes is higher than your income in the past. Your benefits are based on your highest 35 years of earnings, adjusted for inflation.

Second, your question seems to imply that you might be subject to the earnings test. If you are not yet at full retirement age, Social Security might reduce your present benefit based on how much you earn. (Benefits lost because of the earnings test will increase benefits at full retirement age, so they are not totally “lost.”) But the earnings test does not apply once you reach full retirement age, so you need not worry about the earnings test.

Thus, continuing to work will not only bring in more income, but can possibly increase the baseline calculation of your benefits. If, in addition, working allows you to delay claiming, it could significantly increase the benefits you receive for the rest of your life.

Got a question you’d like answered?

You can submit a question for the “Social Security Q&A” series for free. Just hit “reply” to the Money Talks News newsletter and email your question. (If you don’t already receive the newsletter, you can sign up for free, too: Click here, and the sign-up box will pop up.)

You also can find all past answers from this series on the “Social Security Q&A” webpage.

About me

I hold a doctorate in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. Presently, I am teaching at Gallaudet University.

In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.

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