Whether you want to stay busy, pursue a new career or act as a mentor to a new generation of professionals, many seniors find themselves back in the workplace almost as soon as they retire. Often, part-time or even full-time work offers a winning combination of mental stimulation and personal fulfillment. But you may find yourself wondering: Does working after retirement affect my Social Security benefits?
Ironically, seniors who go back to work for financial reasons may experience a temporary drop in their Social Security income. The Social Security Administration has set limits on the amount of money you can earn in retirement, and exceeding those limits often results in withholdings of your monthly benefits.
Fortunately, the SSA’s rules are relatively straightforward, and your withholdings will eventually be added to subsequent years’ payments. In the meantime, here are a few ways working may impact your Social Security cash flow in the first few years after you retire.
The Full Retirement Age Rule
If you were born between January 2, 1943 and January 1, 1955, your full retirement age for retirement insurance benefits is 66. Take note: If you work, and you’re the full retirement age or older, you keep all of your benefits, no matter how much you earn!
This is great news for many of today’s seniors, who are living, working and staying independent longer than ever before. Many people choose not to draw benefits until the full retirement age, and some even keep working into their 70s. So, if you’re already planning to live off of savings and other income sources at least until age 66, going back to work before then won’t impact the benefits you get later on.
Calculating Your Withholdings
If you do take Social Security before the full retirement age, you’ll have $1 deducted from your benefits for every $2 you plan to earn above the threshold amount, which is $16,920 in 2017. Keep in mind, that money is withheld on the front end under the assumption that your work income will start rolling in immediately.
For example, say you file for benefits at age 62 in January 2017, and your monthly payment is supposed to be $700. You plan to work and earn $22,000 in 2017—$5,080 above the $16,920 limit.
The SSA would withhold $2,540 ($1 for every $2 you earn over the limit), and that withholding would not be evenly dispersed throughout the year. Rather, all of your benefits from January 2017 through April 2017 would be withheld—a total of $2,800—and that extra $260 would be repaid to you in 2018. Normal monthly benefits would commence in May 2017.
If you turn 66 in 2017, however, you’ll have $1 deducted for every $3 you plan to earn above $44,880 until the month you reach the full retirement age.
Let’s say you’re going to reach age 66 in November 2017, and you project to earn $45,900 in the 10 months from January 2017 through October 2017. . You’ll have $340 withheld for the year, and you’ll miss out on your entire $700 Social Security check for January. Normal benefits will resume in February, and you’ll get that extra $340 back in 2018.
First-Year Retirement Rule
It’s common for people who retire mid-year to have already earned more than the annual limit. However, the SSA has created a special rule that allows retirees to get their full benefits during any whole month they’re retired, regardless of total earnings during that first year.
Ultimately, this rule may free you from worry if you’re thinking about transitioning from full-time to part-time work. You might earn a considerable salary during your last calendar year of full-time employment, but as long as you earn under the monthly threshold when you start your part-time job ($1,410 in 2017), you won’t have anything withheld.
Getting Your Benefits Back
Last but certainly not least, understand that even if your benefits are withheld, they will not be taken. Once you reach the full retirement age, your monthly payment will be increased based on the withheld amount. Furthermore, a lucrative year before you reach the full retirement age may actually increase the benefits for which you’re eligible afterward.
The bottom line is this: If you’re considering returning to work and worried about the effect on Social Security, rest assured even if it impacts your payout now, you’ll receive the withheld portion once you decide to fully retire.
Retirement and planning for the future can be tricky to navigate, but we’re here to help. Learn more in our free guide, Aging in Place: A Popular Trend for a New Generation of Seniors.
