Social Security and Working: Everything You Need to Know

Older worker man examining his notes
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This story originally appeared on NewRetirement.

Social Security and working: Believe it or not, the two are more or less completely compatible with each other.

You can absolutely get Social Security retirement benefits and work at the same time. However, following are a few things that you do need to know.

Social Security work penalties are determined by your age

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There are no penalties for receiving Social Security and working at the same time if you have reached your full retirement age.

After reaching your full retirement age, you can earn as much money as you like without incurring any penalties.

Your full retirement age is determined by your birthday. For reference: If you were born between 1943 and 1954, then your full retirement age is 66. If you were born in 1960 or after, then your full retirement age is 67.

It is important to note that the rules described here are for Social Security retirement benefits. There are different rules for disability or supplemental security income payments.

For more information, you can consult the Social Security Administration’s Retirement Benefits Planner webpage.

What are the Social Security work penalties if I am younger than my full retirement age?

Man looking at inflation
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If you decide to collect Social Security benefits and work at the same time when you are younger than your full retirement age, there will be penalties dependent on your age.

What happens if you’re more than a year under your full retirement age?

Older worker
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If you’re younger than full retirement age during all of 2020 and still working, the Social Security Administration will deduct $1 from your Social Security benefits check for every $2 you earn above the annual limit.

For 2020, that limit is $18,240.

What happens the year you reach your full retirement age?

Man working from home
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In the year that you reach your full retirement age and still are working, Social Security will only deduct $1 from your benefits for every $3 you earn above $46,920 until the month you reach that full retirement age.

You will likely recoup any work penalties

Social Security payment
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According to the Social Security Administration’s guidance, “Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings.”

So, you can kind of think of the penalties as another way to save for your future.

What counts as work earnings?

Senior woman looking in the mirror
goodluz / Shutterstock.com

If you are under your full retirement age and working, you are probably concerned about what exactly counts as work earnings.

The following income sources count as earnings:

  • Wages from a job
  • Net earnings if you are self-employed
  • Bonuses, commissions and vacation pay

Income that is not counted includes pensions, annuities, investment income, interest and veterans or other government or military retirement benefits.

Social Security and working: You will always pay Social Security taxes

Seniors working on taxes
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No matter your full retirement age and whether or not you are paying work penalties, if you are working, you will continue to pay Social Security taxes on your earnings.

The good news here is that those additional earnings could potentially increase your Social Security benefit amount.

Social Security will check your record every year and will notify you if you have achieved a higher benefit amount.

When should you start receiving Social Security benefits?

Social Security payments
Steve Heap / Shutterstock.com

The general rule of thumb is that you should delay the start of Social Security benefits as long as practical, regardless of whether you intend to work or not.

This is because the earlier you start, the smaller your monthly benefit check will be. You can use a Social Security break-even calculator to determine the optimal time to start benefits.

Or, find out your different benefit amounts for different start ages and try various scenarios in a detailed retirement calculator.

The NewRetirement retirement planning calculator will tell you exactly how your cash flow, net worth, out-of-savings age and debt situation will be impacted by different Social Security benefit amounts and start ages, factoring in penalties for any work income received before full retirement age.

How long should I work?

Senior worker
gpointstudio / Shutterstock.com

There are so many benefits to work: staying engaged, social connection, mental stimulation — and, of course, income.

You should work as long as you need to and as long as you want to.

A retirement planning calculator can be a helpful tool to help you assess how work income impacts your long-term retirement plan.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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