What Happens When You Work While Claiming Social Security?

Starting Early and the Earnings Limit
If you start taking Social Security benefits before your “full retirement age” (FRA), currently between 66 and 67, and still work, there’s a rule called the “earnings limit.” If you earn over this limit, part of your Social Security benefits will be temporarily withheld. The idea is that Social Security was created for people who aren’t working full-time anymore, so there’s a limit on how much you can earn without affecting your benefits.
For 2024, the Social Security earnings limit for someone claiming benefits before full retirement age is $22,320; in 2025, this limit increases to $23,400.

Example:
Imagine you’re 62 years old in January 2024, and you start taking Social Security benefits early at $1,000 a month ($12,000 a year). If your job and other income total less than $22,320, you’ll get the full $12,000 in Social Security. But if you earn more than $22,320, the Social Security Administration (SSA) deducts $1 from your benefits for every $2 over this limit.

Let’s say you earn $32,320 in 2024, which is $10,000 over the $22,320 limit. Social Security would reduce your benefit by $5,000 (half of $10,000). Instead of getting $12,000 that year, you’d only receive $7,000. SSA might even hold back your first five monthly payments to cover this reduction.

Reporting Your Expected Income
You’ll need to tell the SSA if you expect to earn over the limit so they can adjust your benefits at the start of the year. If you wait to report until you file taxes, you might face penalties. The good news? Any benefits withheld are not gone forever. Once you reach your full retirement age, the SSA recalculates, and you’ll get a slightly higher monthly benefit to account for those months of withheld payments.

Example:
Suppose you kept working and had your benefits withheld for five months each year from age 62 to 65. When you reach your full retirement age at 67, the SSA adjusts your start date to “age 64,” reflecting the 25 months you didn’t get benefits. Your monthly benefit will then be a little higher, though not as much as if you had waited to start collecting Social Security.

Special Rules the Year You Reach Full Retirement Age

The year you reach your full retirement age, the rules change. Let’s say you’ll turn 67 in September 2024 and start Social Security in January. For the first eight months, you’re only allowed to earn up to $59,520. If you earn more, SSA will reduce your benefits by $1 for every $3 over this limit. However, once you reach FRA in September, you can earn any amount without any reduction in benefits.

Example:
If you earn $62,520 from January to August (that’s $3,000 over the $59,520 limit), SSA would withhold about $1,000. So, if your monthly benefit is $1,000, you won’t receive any payment for January, but you’ll get your regular payments starting in February.

Types of Income That Count Toward the Earnings Limit

Not all income counts toward Social Security’s earnings cap. Here’s a breakdown:

Counts Toward the Earnings Limit:

• Wages: Money you earn from a job.
• Net Self-Employment Income: Income after expenses if you’re self-employed.
• Bonuses, Commissions, and Vacation Pay: If you earn extra from work, it counts.

Does Not Count:

• Pensions, Annuities, and RMDs: Payments from retirement accounts don’t count.
• Investment Earnings: Money from investments, such as capital gains.
• Interest and Other Government Benefits: These also don’t count.

Example of What Counts
Imagine you work a part-time job earning $20,000 per year and get $3,000 in bonuses. You also receive $10,000 from investments. Only the $23,000 from your job and bonus counts toward the SSA earnings limit.

Important Things to Remember

1. Know Your Full Retirement Age (FRA)
   Your FRA is when you can collect 100% of your benefit. If you claim benefits early, your monthly payment will be permanently lower, and if you earn over the earnings limit, part of your benefits will be temporarily withheld. Knowing your FRA helps you plan better.
2. Report Earnings Accurately
   Estimating your earnings for SSA in advance helps avoid unexpected penalties. Overestimating is better because SSA will refund you any extra withheld amount if you earned less than expected. If you underestimate, you’ll have to pay SSA back.
3. Getting Back Some Benefits Later
   If you lose benefits due to the earnings limit before reaching your FRA, SSA will recalculate your benefit to include those months of withheld payments. This can lead to a higher monthly payment once you reach full retirement age.

Glossary of Key Terms

1. Full Retirement Age (FRA): The age at which you are eligible to receive 100% of your Social Security benefits. For most people, this is around 66 or 67.
2. Earnings Limit: The maximum amount you can earn while receiving Social Security benefits before your full retirement age without having your benefits reduced.
3. Social Security Benefit: Monthly payments provided to retirees or disabled individuals based on their earnings history.
4. Withholding: When the SSA temporarily holds back part of your Social Security benefits because your earnings exceed the limit.
5. Pension: Regular payments made to retirees from a company or government agency, which do not count toward the earnings limit for Social Security.
6. Annuity: A financial product providing regular payments in retirement, also excluded from the earnings limit.
7. Net Self-Employment Income: Money you earn from a business you own after expenses, which counts toward the earnings limit.
8. Required Minimum Distribution (RMD): The minimum amount you must withdraw from retirement accounts annually starting at age 73, which does not count toward the earnings limit but may increase taxable income.
9. Capital Gains: Profit from the sale of assets like stocks or property, which does not count toward the earnings limit.
10. Social Security Administration (SSA): The government agency responsible for managing Social Security benefits.