Social Security can help to support you in retirement. But there are confusing rules surrounding the benefits you'll receive.
Unfortunately, many future retirees are unaware of one particular regulation related to the amount of money they'll get in their later years -- and as many as 57% of workers could be at risk of losing some of their benefits because of it.
To make sure you don't inadvertently reduce the Social Security income you end up with, it's important you know the truth about this particular regulation and how it can affect your future plans.
Could you be at risk of losing Social Security?
A recent study from the TransAmerica Center for Retirement Studies found 57% of current workers intend to work either full time or part time after they've officially retired. As a result, they're potentially at risk of losing some of their Social Security checks.
It's not necessarily a bad idea to keep doing some work to bring in some extra income as a senior. But you can run into trouble if you don't understand how Social Security's rules relate to your earnings. If you're collecting benefits and haven't yet reached your full retirement age (FRA), working can result in losing some or all of your Social Security income.
Eventually, you can get back the money the Social Security Administration withheld due to your earnings. But it can take a very long time, and you may not live long enough to do it. Furthermore, the loss of those Social Security checks while you're working could end up blowing a hole in your budget if you intended to have both retirement benefits and earnings from an employer at the same time.
When do you lose Social Security benefits due to working?
To determine if working could lead to forfeiting your Social Security checks, you first need to know your full retirement age, which is based on birth year:
- 66 and four months if you were born in 1956
- 66 and six months if you were born in 1957
- 66 and eight months if you were born in 1958
- 66 and 10 months if you were born in 1959
- 67 if you were born in 1960 or after
If you've already reached your designated FRA, you're free to earn as much money as you want without losing any Social Security income. But if you're below that age, part or all of your benefit could disappear once you earn too much. Here's when you could lose benefits:
- If you won't reach FRA at any time during the year, you forfeit $1 in benefits for every $2 earned above $19,560 in 2022.
- If you'll hit FRA later in the year but haven't yet, you forfeit $1 in benefits for every $3 earned above $51,960 during the part of 2022 before you reach FRA.
The Social Security Administration doesn't just take a little money out of each check. They withhold entire checks based on the amount you forfeit. If your earnings will cause you to lose $3,000 in benefits in 2022 and your monthly checks are for $1,500, you'll miss two entire checks.
Once you finally reach FRA, the Social Security Administration figures out how many months you missed payments. You're credited back the early filing penalties that would've otherwise applied for those months. So your benefit check goes up a bit.
Over the years, the slightly higher checks you get after FRA make up for the forfeited funds. But this won't help you financially for a while, and if you pass away soon after your check amount is recalculated, you may not break even.
You need to be aware of the risk of losing your Social Security if you're among the majority of Americans who plan to work in retirement so you can plan accordingly. In many cases, you may decide it's not worth claiming benefits at all before FRA so you can work as much as you want and raise your future Social Security in the process.