If you're worried about inflation and thinking about going back to work after retiring to cope with rising prices, there are a few key rules you need to know. These rules could affect your continued eligibility for Social Security benefits, as well as the amount of your checks that you get to keep.
Here are the rules.
1. You could forfeit benefits if you work too much
While you may assume returning to work is going to give you lots of extra money, the reality is that you could end up losing some of your Social Security income. That's because earning too much can result in the temporary forfeiture of your benefits.
The rules for working while getting Social Security retirement income vary depending on how old you are. If you have already reached your full retirement age (FRA), this is not a concern for you, because retirees who are past FRA have no restrictions on what they can earn while still getting their full payments. Your FRA is between 66 and four months and 67 if your birth year is 1956 or later.
If you are younger than your FRA though, there's an earning limit. And if you exceed it, then benefits are withheld. If you will hit FRA at some time during the year, you can earn up to $51,960 when working before reaching that milestone. Once your earnings exceed this amount, you lose $1 for each extra $3 earned.
But if you won't reach FRA at all during the year, the rules are much harsher. Once your earnings exceed $19,560 in 2022, you lose $1 in benefits for every extra $2 you earn. Entire checks are withheld to account for the benefits income you forfeit, so you can't easily double-dip and get money from both your job and Social Security.
At your full retirement age, benefits are recalculated and you get credit for missed checks, so your monthly income increases later. But if you've returned to work because your money isn't going far enough during this time of high inflation, larger future checks won't help you in the moment.
2. Earning a higher income could lead to more Social Security taxes
You should also be aware that your choice to return to work could lead to losing some of your Social Security benefits to taxes.
Retirees can keep all of their retirement benefits without owing federal tax if their countable income is below $25,000 as a single tax filer or below $32,000 as a married joint tax filer. Countable income includes half of Social Security benefits, all taxable income, and some non-taxable income. But once you're above these limits, then up to 85% of benefits can be taxed, with the specific amount based on just how high your earnings are. The taxes do phase in, but this is still a huge hit to take if you end up going above these thresholds due to returning to work.
These tax rules apply regardless of how old you are. And if you live in one of the 12 states that tax Social Security benefits, you could also face taxes on the local level as well. Be sure to know the rules before you go back to work, so you can prepare for a higher tax bill if this is going to happen to you.