This article was updated on January 11, 2018, and originally published on January 24, 2016.
Working into your 60s can provide additional peace of mind, but it's important to know the rules surrounding work and Social Security income, especially if you plan on taking Social Security early.
For instance, Social Security recipients who are younger than full retirement age and continue to work could see their Social Security income reduced if they earn over $17,040 in 2018, but recipients won't see their Social Security income reduced by a spouse's income.
First, a bit of background
As pensions disappear and retirement savings fall short, older Americans are working later in life. According to the Bureau of Labor Statistics, the percentage of people over 65 who continue working has increased to 19.3% from 12% in 1990, and the percentage of seniors who will be working beyond age 65 will climb to 21.8% in 2026.
In part, people are working later in life because they're healthier in their 60s than they've ever been before. However, a large number of would-be retirees are working longer because their retirement savings have come up short, and their Social Security income is too small to cover their expenses.
According to the Government Accounting Office, almost 29% of Americans over 55 haven't saved any money for retirement, and according to the Social Security Administration, the average retired worker will collect only $1,404 in monthly Social Security benefits in 2018.
Those are sobering revelations considering the Bureau of Labor Statistics estimates the average American over age 65 spends $41,403 per year.
Impacts of working while taking Social Security
If you're working, are under your full retirement age, and are collecting Social Security based on your employment history, then Social Security will reduce your payment by $1 for every $2 you earn above $17,040 this year.
While your wages can reduce your Social Security payout, your spouse's wages won't. A spouse's wages will, however, reduce his or her own Social Security payment if your spouse is also younger than full retirement age.
For example, Jim and Kathy are a married couple entering their golden years. Jim is 62, plans to continue working part-time, and is electing to take his Social Security early. Jim expects to earn $20,000 in wages from his part-time job this year.
Meanwhile, Kathy is 62, isn't taking Social Security early, and she also expects to earn $20,000 in 2016. Because Social Security reduces Jim's Social Security income by half the amount he earns above $17,040, his $20,000 in part-time wages is $2,960 over the income limit, and that means his Social Security income will be reduced by $1,480 this year.
However, since the Social Security income limit applies only to Jim's earnings, Kathy's $20,000 in earnings will have no impact on the amount he receives from Social Security.
Two more things
Kathy's wages don't affect Jim's Social Security income, but they do affect her own. If she also takes Social Security early, then her Social Security payments would similarly be reduced by any wages she earns above $17,040.
It may also be helpful to know that if Kathy collects spousal Social Security benefits under Jim's employment record, rather than her own record, then Jim's wages would cause both his and her Social Security checks to be reduced.
Oh, and all income isn't equal
Social Security doesn't include dividend income, interest, pensions, government payments, investment earnings, or capital gains when it's calculating your income to determine the amount it will reduce your payment. It only includes wages from an employer, or net earnings if you're self-employed. Social Security will, however, count contributions to a pension or retirement plan if it's included in your gross wages.
If your situation is complicated or you're still unsure of how Social Security limits may affect you, contact Social Security or your tax planning professional for additional insight.