Like many people, you may associate Social Security retirement benefits with a key part of their name: retirement. However, you may continue working while drawing Social Security retirement or survivor’s benefits, and in many cases, doing so could lead to a higher overall benefit. Below, we discuss a couple of things retirees should know if they plan to continue working after starting to draw Social Security retirement benefits.
Benefits May Be Recalculated
Your Social Security benefits are calculated by how much you’ve earned per year and how many years you’ve worked. The longer your earnings history and the higher your average annual earnings, the more you may receive in total benefits each year.
The number of years you’ve worked (and paid Social Security taxes) is a crucial factor in your benefit award. If you’re retiring after having worked fewer than 35 years, adding a few years to your work history may increase your overall benefit, even if your earnings are relatively low.1
Each year, the IRS reviews the records of all Social Security recipients who report wages in the last year. If your most recent year marks one of your highest-earning ones (or if you retired with an earnings history of fewer than 35 years), your overall benefit may increase.
High Earners’ Benefits Could Be Reduced
According to the Social Security Administration, once you’ve begun drawing Social Security benefits, you’re considered “retired” regardless of whether you keep working. As a result, there’s a limit on the amount you may earn through W-2 or 1099 work each year while still receiving Social Security benefits.
Generally, if you’re under Full Retirement Age (FRA) for the entire year in which you earned an income, the Social Security Administration deducts $1 from your benefit for each $2 over the annual limit ($19,560 in 2022) you earn. In other words, if you begin drawing benefits at age 62 and earn $25,560 per year, you receive approximately $3,000 less in Social Security benefits than you’d otherwise earn. (If you leave employment, your benefit reverts to its regular amount.)
If you’re at or over FRA and still earning income, you have $1 in benefits deducted for every $3 over the annual limit ($51,960 in 2022). So while someone who continues earning money before getting to FRA may see a significant cut in their benefits once they earn more than around $20,000, someone who has reached FRA may earn more than $50,000 per year without any Social Security penalty.
The Social Security Administration defines “earnings” relatively narrowly. It doesn’t include pensions, annuities, investment income, veterans’ benefits, or military retirement benefits. Generally, to have one’s earnings reduced, a Social Security recipient typically needs to have income from a W-2 job or as a 1099 independent contractor.
There are some exceptions to each of these earnings rules. That’s why it’s worth discussing your benefits with a financial professional if you plan to work after claiming Social Security benefits (or work beyond your FRA).
1 https://www.ssa.gov/benefits/retirement/planner/whileworking.html
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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