Social Security Q&A: Will Earning Money in Retirement Reduce My Social Security?

senior worker
Photo by Iakov Filimonov / Shutterstock.com

Welcome to a new Money Talks News feature, Social Security Q&A. You ask a Social Security question, and our expert provides the answer.

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

Today’s question comes from Paul:

“I read on this website that if Social Security recipients earn over $17,040 in 2018, then their benefits are reduced. What type of income is included in that $17,040? Is it just W-2 earnings? Or, does the limit include other forms of income like interest income, capital gains and 401k withdrawals?”

Paul, the short answer is: Only earnings subject to the FICA tax are included in the $17,040 limit. Such earnings include not only those reported on W-2 forms, but also those reported as self-employment income. So, you don’t need to be concerned about interest income, capital gains and so on.

‘Twists’ in the earnings penalty

Next, let’s take a look at some interesting twists with respect to the earnings penalty.

First, the penalty applies only to those who have not reached their full retirement age (FRA). Once you reach your FRA, the penalty ends: Work all you want and still receive your full benefit check from Social Security.

Second, the penalty changes for the year in which you reach your FRA. Prior to your FRA, your benefits are reduced $1 for every $2 earned above $17,040 (in 2018). In the year you reach your FRA, the penalty is $1 for every $3 earned above $45,360.

Third — and most important — the earnings “penalty” is not like a fine for, say, speeding. When you are fined for speeding, your money is gone forever. With the earnings “penalty,” the money you lose is lost only temporarily.

Getting your Social Security money back later

Here’s an example of how you get money back after being penalized. Suppose at your full retirement age of 66, your Social Security benefit would be $2,000 a month. However, let’s say you claimed at 62, so your potential benefits would be $1,500 a month, a 25 percent reduction because you claimed early.

You continue working, earning enough so that you lose all of your Social Security benefits each year. That seems like a really stiff penalty. Yet, when you reach 66, the SSA recalculates your benefits, allowing for any earnings penalties imposed in previous years. Your recalculated benefit in this example will be $2,000, the same amount that you would have gotten had you not claimed early.

The earnings penalty temporarily cost you $72,000 over four years. But in the end your monthly benefit is increased from $1,500 to $2,000. So, you eventually get the $72,000 back, provided you live at least a normal life span.

Paul, if you want to get deeper into these weeds, you can check out this page on the SSA website.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m most likely to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.

About me

I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years. 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.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

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.

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

Read Next
How to Achieve Your Financial Goals in 2020
How to Achieve Your Financial Goals in 2020

New year, new you. Get your finances on track with the help of these tools for investing, saving, budgeting and earning.

3 Costly Social Security Mistakes That Women Make
3 Costly Social Security Mistakes That Women Make

Women face unique challenges when planning for retirement and making these mistakes can result in a skimpier retirement.

7 Hobbies That Help You Live Longer
7 Hobbies That Help You Live Longer

Research shows some hobbies can add years — or even decades — to your life.

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

10 Mistakes That Cost You Money at Warehouse Stores
10 Mistakes That Cost You Money at Warehouse Stores

Wholesale clubs might have great deals, but these mistakes will cost you.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

12 Deep Discounts Available on Amazon This Friday
12 Deep Discounts Available on Amazon This Friday

These items are steeply discounted — but the deals won’t last long.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.