Social Security retirement payouts are supposed to supplement personal retirement savings or pensions. As a result, many “retirees” work part-time or side jobs to maintain their lifestyle. Notably, generating outside income can affect your Social Security benefits in some situations.
Here’s a quick guide to collecting Social Security while working.
You’re fortunate if you wait until full retirement age to claim Social Security. Your Social Security benefits will not be impacted by any side income.
From 1943 to 1954, the full retirement age is 66. Every year between 1955 and 1959, the full retirement age rises by two months to 67 for individuals born after 1960.
Work Before Full Retirement Age Payout Reduction
If you haven’t achieved full retirement age, Social Security will temporarily reduce your income.
The SSA will lower your benefits by $1 for every $2 earned beyond the annual limit. In 2021, it’s $18,960.
Assume you’re 63, collecting Social Security but also working part-time and earning $28,960.
A $10,000 annual salary will cut your benefits by $5,000 in 2021.
This shouldn’t stop you from working while collecting Social Security.
However, the SSA is permitted to withhold any amount from your check that it deems necessary. The SSA will boost your benefit once you reach full retirement age.
Rules for the Year You Turn 65
You’ll likely exceed the SSA earnings cap in your first year of complete retirement if you’re still working full-time for half the year or more.
In consideration of this, the SSA modifies its withholding policy. Instead of $1 for every $2 earned, payments are lowered to $1 for every $3 earned the year you reach full retirement age.
The earnings limit also rises from $18,960 to $50,520.
Your payout will be lowered by $3,000 if you earn $59,520 before reaching full retirement age.
Your benefits will be increased the month you reach full retirement age to reflect the prior withholding.