How Will Working Affect Social Security Benefits
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RETIREMENT .  READ TIME: 4 MIN
How Will Working Affect Social Security Benefits?
In a recent survey, 74% of current 
workers stated they plan to work for 
pay after retiring.
And that possibility raises an 
interesting question: how will 
working affect Social Security 
benefits?
To answer that question requires an 
understanding of three key concepts: 
full retirement age, the earnings test, 
and taxable benefits.
Full Retirement Age:
Most workers don’t face an “official” 
retirement date, according to the 
Social Security Administration. The 
Social Security program allows 
workers to start receiving benefits as 
soon as they reach age 62 – or to put 
off receiving benefits until up to age 
70.
“Full retirement age” is the age at 
which individuals become eligible to 
receive 100% of their Social Security 
benefits. For example, individuals 
born in 1956 can receive 100% of 
their benefits at age 66 years and 4 
months.
Earnings Test: Starting Social Security benefits 
before reaching full retirement age 
brings into play the earnings test.
If a working individual starts 
receiving Social Security payments 
before full retirement age, the Social 
Security Administration will deduct 
$1 in benefits for each $2 that person 
earns above an annual limit. In 2020, 
the income limit is $18,240.3
During the year in which a worker 
reaches full retirement age, Social 
Security benefit reduction falls to $1 
in benefits for every $3 in earnings. 
For 2020, the limit is $48,600 before 
the month the worker reaches full 
retirement age.3
Earnings Test: For example, let’s assume a worker 
begins receiving Social Security 
benefits during the year he or she 
reaches full retirement age. In that 
year, before the month the worker 
reaches full retirement age, the 
worker earns $65,000. The Social 
Security benefit would be reduced as 
follows:
Earnings above annual limit   
 $65,000 – $48,600 = 16,400
One-third excess    
$16,400 ÷ 3 = $5,467
In this case, the worker’s annual 
Social Security benefit would have 
been reduced by $5,467 because 
they are continuing to work.
Taxable Benefits: Once you reach full retirement age, 
Social Security benefits will not be 
reduced no matter how much you 
earn. However, Social Security 
benefits are taxable.
For example, say you file a joint 
return, and you and your spouse are 
past the full retirement age. In the 
joint return, you report a combined 
income of between $32,000 and 
$44,000. You may have to pay 
income tax on as much as 50% of 
your benefits. If your combined 
income is more than $44,000, as 
much as 85% of your benefits may 
be subject to income taxes.4
Taxable Benefits:
There are many factors to 
consider when evaluating 
Social Security benefits. 
Understanding how working 
may affect total benefits can 
help you put together a 
program that allows you to 
make the most of all your 
retirement income sources – 
including Social Security.
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         Website: https://www.activefinancialgroup.com/
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