You Can Collect Social Security While Working – But Should You?

Navigating Social Security can be like walking through a maze with both rewards and pitfalls at every turn.

One of the most perplexing questions facing those nearing retirement age is whether to collect Social Security benefits while continuing to work. The decision isn't straightforward and requires a thoughtful examination of the rules, along with the pros and cons.

This article covers:

• Rules for Social Security and Work
• When to Consider Collecting While Working
• Reasons to Wait Before Collecting
• Making the Decision

Rules for Social Security and Work

First and foremost, it’s crucial to understand the basic rules surrounding Social Security and employment.

Basically, if you’ve reached your Full Retirement Age (FRA), you can work and earn any amount without affecting your Social Security benefits. However, if you’re younger than FRA and claim benefits early, your benefits will be reduced based on your earnings. Keep in mind, the earliest you can file for Social Security is age 62.

Full Retirement Age (FRA): Depending on your birth year, ranges from 66 to 67.

• Before FRA: Can work, but earning too much may reduce benefits.
• After FRA: Can work and earn any amount without affecting benefits.

If You Claim Benefits Before Reaching FRA:

• Earnings Limit for 2024: $22,320.
  • Penalty: Lose $1 in benefits for every $2 earned above this limit.

The Year You Reach FRA:

• Higher Earnings Limit for 2024: $59,520 (until the month you reach FRA).
  • Penalty: Lose $1 in benefits for every $3 earned above this limit.

After Reaching FRA:

• No Earnings Limit: Earn any amount without penalty or reduction in Social Security benefits.

Additional Rules:

• Your monthly Social Security income will be increased permanently to reflect the months that your benefit was reduced.
• Only your wages count toward the earnings limits. For those who are self-employed, only your net earnings from self-employment count. Income that does not count toward the earnings limit include other government benefits, investment earnings, interest, pensions, annuities and capital gains.
• You pay Social Security taxes on work earnings, even when your benefit is reduced.
• The same temporary reduction applies to a spouse working before FRA and receiving a spousal benefit. Your earnings can also reduce the spousal benefit payable to your spouse.
• People who retire mid-year may have already earned more than the annual earnings limit. For them, a special rule applies for the first year you retire, under which you can receive a full benefit check for any whole month you’re retired, regardless of your yearly earnings.
• You get a Social Security do-over if you notify the Social Security Administration within 12 months of claiming Social Security that you’re working and pay back the benefits you’ve already received.

When to Consider Collecting While Working

Considering the benefit deductions, you’ll likely think twice before claiming Social Security while working. However, this approach can offer financial relief and security under certain circumstances.

Here are instances when it may make sense to consider this option:

Supplement Your Income

If you’re confronting a retirement income shortfall and are employed with a modest salary, starting your Social Security benefits early can provide a much-needed supplement to your income. This strategy can also be beneficial if you have transitioned to part-time work.

Health Concerns or Job Security

For those facing health issues or job security concerns, claiming Social Security benefits early while continuing to work, even if part-time, can provide a financial safety net. This approach ensures a steady stream of income if unexpected health problems or job changes arise.

Reasons to Wait Before Collecting

Of course, the decision to collect Social Security early while working isn’t without its drawbacks. Social Security will likely be one of your primary sources of retirement funds. So, it’s important to weigh the potential long-term impacts on your financial health against the immediate benefits.

Here are considerations that suggest a pause might be in order:

Reduced Benefits

Claiming Social Security benefits before reaching FRA means your monthly benefits will be permanently reduced. For someone whose FRA is 67 but starts collecting at 62, the reduction can be as much as 30%. Working and earning above the threshold can further reduce your benefits until you reach FRA.

Tax Implications

It’s also essential to consider the tax implications. Your Social Security benefits may become taxable if your combined income (your adjusted gross income + nontaxable interest + half of your Social Security benefits) exceeds certain limits. This taxation can affect your overall financial strategy, especially if you’re still earning a significant income from work.

Impact on Future Benefits

Finally, working longer and delaying Social Security benefits can significantly increase your monthly benefits when you eventually claim them. Benefits increase by a certain percentage each month you delay, up until age 70. This delay can result in a higher lifetime benefit, especially if you have a longer-than-average lifespan. Learn more about the pros and cons of claiming Social Security early vs. delayed here.

Making the Decision

Deciding whether to collect Social Security benefits while working is a personal decision that should be based on your financial situation, health, job security and retirement goals. If you’re considering this route, here are a few steps to guide you:

• Calculate Your Needs: Assess your financial needs and whether you can afford to delay Social Security benefits.
• Consider Your Health and Longevity: If you have a family history of longevity, delaying benefits could result in higher lifetime earnings.
• Consult with a Financial Adviser: A professional can help you navigate the complexities of Social Security and how it fits into your overall retirement strategy. You can schedule a free financial consultation right now to discuss your situation with an Advance Capital Management adviser.

By carefully considering your personal and financial circumstances, you can make an informed choice that aligns with your long-term retirement goals. Remember, the path to a secure retirement is unique for everyone, and what works for one person may not be the best choice for another.