Many people find themselves in a position needing to work another job while receiving Social Security benefits. Perhaps the retirement benefits they receive are not enough to make ends meet. So, how does working affect the benefits that you will receive? The Social Security Administration has strict rules about working while receiving benefits. They place an earnings limit on the amount that you can earn before your monthly benefit becomes affected. So, what is this earnings limit and how will it affect your benefits? Keep reading to learn all the details of how an extra income might affect your Social Security income.
How Does Working After Retirement Affect Your Benefits
Working after “retirement” is becoming more and more common. The average recipient of Social Security retirement benefits is only receiving $1,543 per month. One can quickly see why it often becomes necessary to continue working even when receiving benefits. Some people might continue to work their normal job when they choose to start receiving benefits. Others might decide to return to work at a part-time job. So, how does working affect the benefits that you will receive?
The main thing to understand here is that your benefits can be affected by earning additional income, particularly if you have not reached full retirement age. Those who choose to start their benefits early might not receive their full benefits if they are still working. In 2021, the Social Security earnings limit is $18,960 to still receive full benefits. This means that if you earn more than this amount from another source like a part-time job, then your benefits will be reduced. Your benefits will be reduced by $1 for every $2 that you earn above the limit.
Once you hit full retirement age, the rules change a little. During the year in which you hit full retirement age but in the months before your birthday, the limit increases to $50,520. In addition, the benefits will only be reduced by $1 for every $3 you earn above the limit. However, once your birthday rolls around and you officially reach full retirement age, there is no longer an income limit. Once you reach FRA, then you can earn any amount and still receive full benefits. Your eligibility for receiving benefits is not reduced by extra income.
What Is Full Retirement Age?
Full retirement age is the age at which you can begin receiving your full benefit amount with no reductions. So, how old do you need to be to be considered full retirement age? It depends on the year in which you were born. If you were born after 1960, then your full retirement age is 67 years old. For those born from 1943 to 1954, normal retirement age is 66 years old. Birth years between 1954 and 1960 get a couple of months added to the full retirement age for each year.
Income Limits For Social Security Retirement Benefits
Many people ask, “How much can you earn in 2021 and draw Social Security?” The annual limit for 2021 is $18,960 for those who have not reached full retirement age. So, suppose that you begin receiving benefit payments at age 62. This special rule states that you can have no more than $18,960 in annual earnings or else your benefits will be reduced. Keep in mind that the earnings limit only applies to money earned from work. It does not include earnings from investments like an IRA or capital gains. However, if a spouse or child receives benefits based on your work record, their benefits will be reduced as a result of your earnings as well.
If you claim benefits and have been working for the entire year, then it might be a good idea to check out the SSA’s earnings test calculator. You should know that it is your responsibility to notify the Social Security Administration of your earnings. Failure to notify SSA might mean that your benefits do not get appropriately reduced, especially in your first year of working. You might continue receiving your full monthly checks, and then you will be forced to repay those extra benefits when you file your income taxes. You might even owe some additional fines and penalties as well. Be sure that you are aware of these rules when it comes to allowable monthly income so that you do not find yourself in this situation.
Thankfully, if your benefits are reduced because you earned more than the income limit, that money is not lost forever. You will simply have to wait a little longer to receive it. Once you reach full retirement age, your monthly benefit amount will be recalculated to account for the previous reduction in benefits. Once reaching this age, you no longer have to worry about your benefit amount changing except for yearly COLA increases. Once you reach this age, you can earn an unlimited amount of income and see no reduction in benefits. This also applies to all types of income – both working income and investment income. So, even if you are still working a job that pays you more than the annual limit, you will still receive your full benefit amount.
Tax Implications Of Working While On Social Security
Not only can working while receiving benefits lower the amount of your Social Security check, but it can also have tax implications as well. Remember that whether or not your Social Security benefits are taxable depends on your income level. All your income factors into this as well – not just income from working a job. So, any income that you receive from annuities or other investments counts toward the total. You might find yourself in a situation where your benefits are reduced and up to 85% of them might become taxable as well. Most retirees want to maximize their income, so you should wait until full retirement age to start receiving your benefits if at all possible. While your benefits might still be taxable based on your personal finances, you would no longer have to worry about a reduction in benefits because of other income.
Earnings Limit For Social Security Disability Benefits (SSDI)
So far we have been mainly focused on income limits for those on Social Security retirement benefits. Many people on Supplemental Security Income (SSI) and SSDI wonder how work affects your benefits as well. In fact, they often ask, “How much can I earn while on Social Security Disability in 2021?” When it comes to SSI and SSDI, the rules are a little different. Receiving SSDI or SSI benefits means that a person has been found to be disabled and unable to perform substantial gainful activity. This essentially means that they are unable to perform any type of full-time work and thus earn an income. For those qualifying for SSDI or SSI benefits, an earner can make no more than $1,310 per month. Any income above this amount, even from self-employment, will make them ineligible to receive SSI or SSDI benefits.
Remember that those receiving SSI or SSDI might have to worry about Social Security taxes on their Social Security earnings as well. Since the income limits and average benefits are lower, most people receiving disability benefits will not be required to pay any taxes on their benefits. Remember that the Social Security tax limits are adjusted almost every year too, so make sure that you are aware of the current rules. Recipients of SSI and SSDI are also automatically enrolled in Medicare after a certain period of time.
The Bottom Line
If you think that you might still need to work after starting your Social Security retirement income, then you need to make sure you understand exactly how working will affect your benefits. You can earn a small income and still receive your full benefits, although any income that you earn over the limit of $18,960 will reduce the benefits that you receive if you have not yet reached full retirement age. Upon reaching retirement age, you can earn an unlimited amount of money and see no negative effects on your Social Security benefits. Also remember that any reduction in benefits is only affected by income earned from working – investment income does not count toward the limit! So, if possible, you should try and wait until you reach full retirement age to begin receiving your benefits so that you do not have to worry about the income limit having an effect on your benefits.
Frequently Asked Questions
At what age can you earn unlimited income on Social Security?
Upon reaching full retirement age, you can earn an unlimited income while still receiving Social Security. Full retirement age varies based on the year in which you were born. That age can range anywhere from 65 to 67 based on your birth year. For those born after 1960, you will have to wait until you are 67 to be considered full retirement age. However, for those born before that, you might be able to retire as early as 65.
Can you collect Social Security at 62 and still work?
Yes, you can begin collecting Social Security as early as age 62, and you can still work while you collect these benefits. However, there is a limit to the amount that you can make while receiving benefits. Most people working full time will earn more than the limit of $18,960, and their benefits will be reduced by $1 for every $2 that they earn over the limit. If working part-time or full-time and earning less than this limit, then there will be no reduction in benefits.
How much money can I make before Social Security will reduce my benefits?
It depends on your age. If you have not yet reached full retirement age, then you can only earn $18,960. If you make more than that, then your benefits will be reduced. That limit increases to $50,520 the year in which you reach full retirement age. Suppose you reach normal retirement age in September. Then from January to September, the higher limit will apply. Upon actually reaching normal retirement age, the limit is removed altogether. This means that you can earn an unlimited income with no effect on your benefits. This age is anywhere from 65 to 67 depending on the year in which you were born.
When can someone stop working and still collect Social Security?
You can begin collecting Social Security as early as age 62, although you will not receive full benefits. Your benefit amount will be slightly reduced from what it would have been had you waited until full retirement age. The longer you wait to collect your benefits, the higher the amount will be. Upon reaching age 70, your benefit will be the highest amount possible. There is no need to wait past age 70 to begin collecting benefits. Also, at that point, you can earn additional income from another job or investments without any negative effects on your benefits.