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It’s perfectly legal to work while taking Social Security benefits. But it’s not always worth it, financially. And, in some cases, you’d be better off waiting to claim Social Security when you are no longer employed. We talked with a Social Security expert and explain the rules here.
It’s important to know them before claiming Social Security so you can see what you’re getting into.
You need to know …
When it comes to claiming Social Security early:
- The younger you are when claiming benefits, the smaller your monthly check will be.
- Once you claim Social Security, you’re generally stuck with that same monthly amount (except for cost-of-living increases) for life.
- Most Americans workers who get Social Security claim their benefits as soon as possible, at age 62. But, depending on your health and the work you do, 62 can be too young to quit working. Many people want to or need to keep on working after applying for Social Security. Also, some retire, and then return to work, even retiring and returning several times.
Percentage of non-disabled beneficiaries at the age at which benefits began, by sex, 2012*
You could lose money
Depending on how much you earn, if you have not yet reached what the Social Security Administration calls “full retirement age” (FRA) or “normal retirement age” (NRA), you risk losing money — maybe even most of your Social Security check — if you work while collecting benefits.
Your FRA is 66 if you were born between 1943 and 1954. For those born in 1955 and later, it increases gradually until reaching age 67 for those born in 1960 or later. (When you claim benefits before your FRA you’ll get less Social Security than by waiting until FRA.) Here’s how to determine your FRA.
We asked Webster Phillips, senior policy analyst at the National Committee to Preserve Social Security & Medicare, how going in and out of work, or staying on at work, affects a worker’s Social Security benefit checks. Phillips is a spokesman for the 34-year-old nonprofit group and, previously, he worked for 31 years for the Social Security Administration.
Phillips’ advice: If you aren’t yet at FRA, before applying for Social Security benefits, estimate how much you’ll earn from work and look into Social Security’s rules if you intend to work. That’s because, for workers collecting benefits before their FRA, special rules apply.
- There’s no penalty — no matter how much you earn — for working while taking benefits after your full retirement age. Once you hit FRA, you can keep 100 percent of what you earn plus all of your Social Security benefits. (Here’s a Social Security calculator to help you find your FRA).
- If you work while taking benefits before your full retirement age, you may need to repay part of your Social Security checks during that period.
Under the rules as updated for 2017, if you work before reaching your FRA:
- You can earn up to $16,920 and keep every penny of your Social Security benefits — no penalty.
- For every $2 you earn over $16,920, you must repay $1 to Social Security. “If you made $16,924, you’d lose $2 in benefits,” Phillips explains.
- In the year you reach full retirement age, the rules aren’t as strict. So in 2017, those who reach full retirement age during the year can earn up to $44,880 before the penalty kicks in, and the rate of the penalty is lower. You repay $1 for every $3 earned over $44,880 in the months before your birthday month. Starting with the month you reach FRA, the penalty for working ends and you receive 100 percent of your benefits check. (Example: If you turn 66 on April 23, 2017, you would pay $1 on every $3 earned in January, February and March in excess of the $44,880 limit. Starting in April, the penalty stops.)
- Don’t be too sad about the money taken from your Social Security checks for the penalties described above. You’ll get it back. The Social Security Administration explains:
It is important to note that any benefits withheld while you continue to work are not “lost”. Once you reach NRA, your monthly benefit will be increased permanently to account for the months in which benefits were withheld.
Figure out if you’d pay a penalty, and how much
Phillips emphasizes the importance of planning so you know the effect working will have on your Social Security benefits before you start taking them. To estimate whether you’d pay a penalty and how much you’d owe, use the SSA’s Retirement Earnings Test Calculator.
Whether it’s worth it to start claiming Social Security before your FRA would depend on the size of your benefit checks and the amount you plan to earn. For purposes of illustration, suppose you expect to earn around $60,000 in 2017. (If you don’t know exactly how much you’ll earn in 2017, make a rough guess.)
Here’s how to calculate the effect on your benefit checks (or make an appointment at your local Social Security office, where they’ll use a computer program to do the calculations):
- Subtract $16,920 from $60,000 to find the amount on which you’d pay a penalty: $43,080.
- Divide $43,080 by 2 (the penalty is $1 for every $2 earned) for your annual penalty: $21,540.
- Divide $21,540 by 12 months to find your monthly penalty: $1,795.
The Social Security Quick Calculator estimates that someone age 62 earning $60,000 in 2016 might receive benefit checks of roughly $1,228 a month, so your penalty of $1,795 a month does not make it worthwhile to both work and collect benefits — the penalty more than erases the benefit. You’d be better off to wait and let your benefit keep growing so you can get a bigger check when you do file for payments.
Your earnings and benefits will vary from this example, of course, so it’s important to run your own numbers. The calculator (above) makes it easy.
Boost your Social Security checks by working
On the bright side, regardless of your age, working while collecting benefits could help you increase the size of your monthly benefits.
There are two ways to do this:
- Grow your benefit pool: Your Social Security benefit is based on your earnings in the highest-paid 35 years of your work history. If you have not worked for a total of 35 years, your nonworking years count at $0 in calculating your benefits. Continuing to work and taking Social Security when you are older can increase your benefits if you replace lower-earning years with higher-earning years.) “If you are filling in a zero, the increase that results from your earnings late in your career can be pretty significant,” Webster says. And even if you have already worked 35 years or more, your pool of benefits can grow if you replace lower-earning years with higher-earning years.
- Recalculation: If you worked while claiming Social Security early, once you reach full retirement age your benefits will be recalculated. The penalties you paid are put back into your checks to make them higher. Every full month’s worth of benefits lost to penalties leads to an increase in your future benefits.
Read Social Security’s pamphlet titled “How Work Affects Your Benefits,” to learn the details. Or make an appointment to talk with a benefits adviser at your local Social Security office. Call 800-772-1213 or contact the Social Security office nearest you by looking it up here.
What are your prospects under Social Security? Share with us in comments below or on our Facebook page.