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2 Ways Higher Retirement Income Could Shrink Social Security Checks

By Christy Bieber – Jan 8, 2022 at 7:23AM

Key Points

  • The amount you earn can affect how much of your Social Security benefits you get to keep.
  • Earning too much could result in the temporary forfeiture of some benefits under certain circumstances.
  • You could also lose more of your Social Security checks to the government if your earnings are too high.

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Earning more sometimes means that you won't get to keep all your benefits.

Earning more money is usually considered a good thing. But if you're retired, high paychecks could have an adverse impact on your Social Security income. Specifically, you could end up temporarily or permanently giving up some benefits if you make too much money. 

How could being a high earner hurt you if you're a Social Security retiree? Here are two key ways. 

Two adults looking at financial paperwork.

Image source: Getty Images.

1. You could forfeit some benefits if you're working before reaching your full retirement age

It may come as a surprise, but if you take a job as a retiree and earn too much money from a job, the government will begin withholding some of your Social Security checks. This rule applies to you only if you haven't yet reached your full retirement age (FRA), which is between 66 and four months and 67. 

How much is too much? It depends on whether you'll hit FRA sometime during the year you're working or not. If you won't hit FRA at all, then in 2022, you'll lose $1 in benefits for every $2 earned above $19,560. If you'll hit FRA at some time during the year, you'll lose $1 in benefits for every $3 earned above $51,960. 

Entire checks are withheld when you forfeit benefits due to working. For example, if you receive monthly Social Security income of $1,500 and end up losing $3,000 in benefits, you'd get no check for two months. Then, when you reach FRA, you'd be credited back early filing penalties for the months you got no checks. Since this will raise your payment amount, you'll eventually make back the forfeited benefits in the form of higher monthly income -- if you live long enough. 

Not everyone breaks even if they forfeit benefits, though. And even if you get more money later, that may not help you now if you find your Social Security checks disappear because of your paychecks.

2. You could get hit with taxes on benefits

There's another big reason earning more could result in a reduced benefit. You could find your Social Security checks subject to tax on the federal or state level if your income creeps above a certain threshold.

State tax rules differ on when the government takes a cut of your Social Security, but the IRS rules are clear and don't change from year to year. As soon as provisional income (half your Social Security benefits plus all taxable and some non-taxable income) exceeds $25,000 for single tax filers or $32,000 for joint filers, part of your benefits is subject to taxation. The more you earn, the higher the percentage of benefits taxed. Ultimately, you could be taxed on up to 85% of all the benefits you get if you earn enough. 

Around half of all seniors end up with taxed benefits. If you become one of them because you earn more this year, you could lose buying power as you give a bigger chunk of your income to the IRS.

It's important to plan for any loss of benefits that occurs, even if it's temporary. If your income is going up this year or if you're otherwise concerned your total retirement income is high enough that these rules could apply, take the time to understand the applicable IRS regulations so you can set realistic goals for how much take-home income Social Security will provide.

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