Working for Social Security

An incredible 72% of workers expect to work for pay in retirement, according to a 2009 survey. Although fewer retirees actually work in retirement (34% in 2009, 25% in 2008), most say they do it for enjoyment. Still, a large majority of those who work also do it to earn extra money for basic expenses or to afford luxuries.¹

There’s nothing wrong with wanting to work in retirement, regardless of the reason. But if you decide to earn some extra income, make sure you understand how it will affect your Social Security benefits.

Working Before Full Retirement Age

If you begin collecting benefits anytime between age 62 and the beginning of the year in which you reach your full retirement age for Social Security, any wages you earn from a job or self-employment are subject to the earnings test, in which $1 of your benefits will be withheld for every $2 you earn in excess of the annual earnings limit ($14,160 in 2010; see example below). In the year in which you reach full retirement age, any income earned prior to your birthday will reduce your benefits by $1 for every $3 you earn over the annual limit ($37,680 in 2010). Once you reach full retirement age, your benefits are no longer affected if you continue working.

They Withhold Benefits, But You Get Them Back

When your income exceeds the earnings limit, it’s your responsibility to inform Social Security. Social Security will not adjust your monthly benefit amount but will withhold all benefits until the reduction has been fully applied (see example).

If it seems unfair to withhold benefits just because you are working, consider this bright spot: When you reach full retirement age, the benefits you lost to the earnings test will be credited to you in the form of a higher monthly benefit.

If you expect to work in retirement, let that influence your decision about when to begin collecting benefits. You may eventually recover the lost benefits, but be prepared to go several months at a time without a benefit check.

1) Employee Benefit Research Institute, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.