I sometimes receive questions as to whether an individual can receive Social Security benefits and continue to work. Like many things in life there is not one straightforward answer and there are a number of factors that impact this answer.
You are eligible to receive Social Security retirement or survivors benefits and work at the same time. The effect of working while receiving Social Security benefits depends on whether you are older or younger than your full retirement age. For those born previous to 1943 your FRA is 65 years old, for those born between 1943 and 1954 your FRA is 66, if you were born in 1960 or later your FRA is 67. If you were born between 1955 and 1959 your FRA begins at 66 and adds 2 months for each year, thus if you were born in 1955 your FRA is 66 years and 2 months, born in 1956 your FRA is 66 years and 4 months; 1957 is 66 years 6 months, 1958 66 years 8 months, 1959 66 years 10 months.
If you are at your FRA or older, your Social Security benefits are not reduced regardless of how much you earn.
If you are younger than your full retirement age, the Social Security Administration will deduct $1 from your benefits for each $2 you earn above $21,240. If you reach full retirement age during the year, the Social Security Administration will deduct $1 from your benefits for each $3 you earn above $56,520 until the month you reach full retirement age.
The amount by which your benefits are reduced, however, is not truly lost. Your benefit will increase at your full retirement age to account for benefits withheld due to earlier earnings. However, spouses and survivors who receive benefits because they have minor or disabled children in their care do not receive increased benefits at full retirement age if benefits were withheld because of work.
As an example, if you file for Social Security benefits at age 62 in January 2023 and your benefits payment was $600 per month ($7,200 per year) and during 2023 you worked and earned $30,000. At this amount you would be $8,760 over the $21,240 limit. The Social Security Administration would reduce your benefit by $4,380 ($8,760 / 2). This represents $1 for every $2 above the $21,240 limit.
For another example, assume you will reach FRA in November but began receiving $600 monthly Social Security benefits last year. If you earned $58,000 in the 10 months from January through October, the Social Security Administration would withhold $493 which is $1 for every $3 that was earned above the $56,520 limit. They would reduce your first check of 2023 and beginning in February of 2024 you would then receive your hypothetical $600 benefit and this amount would be paid for the remainder of the year. In 2024 they would then pay the remaining $493 that was withheld.
The challenge comes for some taxpayers in that if they did not plan on working and were below full retirement age, but then decide to work while receiving Social Security benefits. In this instance the Social Security Administration would not withhold the amount they should have because they were not aware of your intention to work. Rather, you will be required to pay back these excess benefits in subsequent years.
In general, the longer you can wait to begin drawing your Social Security the more it grows. Once you are your FRA you will not have any income restrictions on drawing, but you may want to continue to wait as your Social Security benefits increase by 2/3% each month or 8% a year from your FRA until age 70.
To avoid surprises and having to pay back benefits, there is a need for planning on when to draw Social Security. Working with a professional and planning out when you begin taking these benefits will help you avoid any unexpected surprises.
Paul Pahoresky is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at paul@prpassoc.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics.
