Millions of people who receive Social Security benefits are retired workers who depend on the program for a substantial portion of their total income. But many other Social Security takers are actually not yet retired, choosing to work while they receive monthly payments from Social Security, drawing their total income from regular wages and their benefits.

Special rules apply to people working while collecting Social Security, and learning the hang ups can help you continue your career into your later years while maximizing your Social Security benefits. If you're not careful, you can end up losing some of your benefits. This guide offers an overview of how people continue working while receiving Social Security and how to avoid costly pitfalls.

Two people's upper bodies superimposed on a blue background with the frame of a Social Security card and the picture from the $1 bill.

Image source: Getty Images.

How can I receive Social Security while I'm working?

Many people think Social Security's main purpose is to provide benefits to replace regular wage income for folks who have stopped working in their old age. This is true for a large number of people who receive retirement benefits from Social Security after reaching the end of their careers and who don't expect to have further earnings from employment in the future.

However, there are a number of situations in which you can become eligible to receive Social Security benefits long before you reach a typical age for retirement. They include:

  • Early retirement benefits. You can start getting your benefits as early as age 62. Though the full retirement age (FRA) at which you can claim the full amount of monthly payments that results from calculations using the Social Security benefit formula is currently somewhere between 66 and 67 for anyone born in 1943 or later, you're entitled to claim early retirement benefits before reaching your FRA. Moreover, there's no requirement that you actually be retired to get those benefits -- they're called retirement benefits in part to distinguish them from family benefits, which are based on someone else's work record, like with spousal and survivors' benefits.
  • Spousal benefits. If your living spouse has claimed retirement benefits, then you can also be eligible to claim spousal benefits. The most typical situation requires you to be 62 or older before claiming Social Security based on a spouse's work record. However, if you're caring for a child who's under age 16 or is disabled, then you can claim at any age.
  • Survivors benefits. If your spouse has passed away, then you typically become eligible for survivor benefits once you reach age 60 -- even if you yourself have never worked or earned Social Security retirement benefits of your own.  Again, though, surviving spouses can receive benefits at any age if they're caring for a child under age 16 or who is disabled. Also, if you yourself are disabled, then you can receive benefits as a surviving spouse even earlier, at age 50.
  • Disability benefits. Social Security pays benefits to disabled workers and certain family members, including a spouse, children, or a dependent grandchild or parent at any age as long as the worker meets the qualification requirements. In general, to get disability benefits, your condition must prevent you from doing both your former work and other types of work, and it must be long-term in nature, lasting at least 12 months. Because disability benefit payments are based on the idea that the worker is unable to have gainful employment, however, the situation involving disability benefits is fundamentally different from the retirement benefits.

In any of these situations, you might be entitled to Social Security while you're an age at which you'd like to keep working. But that leads to another question: If you can get valuable Social Security benefits that would replace a significant part of the income you earn from working, why even stay at your current job?

Why keep working while on Social Security?

There's nothing implicit in the rules governing Social Security that says you must stop working once you decide to claim your benefits. But for many people -- especially those who claim early benefits -- becoming eligible for Social Security offers freedom to consider the option of early retirement. The benefits may afford you the luxury of ending your career younger than a traditional retirement age. Many workers choose to take their Social Security retirement benefits at the minimum age of 62 to start their golden years early.

On the other hand, though, many people decide to work past their FRA, sometimes keeping their jobs well into their 70s or even longer. Increasingly, what many older people are finding is that early retirement has both pros and cons. The freedom and flexibility to do whatever you want with your time is certainly valuable, but for some retirees, losing the social connections from being in a workplace turns out to be a bigger challenge than they expected. In addition, given how important work is to one's sense of accomplishment and purpose, choosing to set aside the knowledge and experiences of your chosen profession by ending your career and moving on to a much different lifestyle can be an extremely difficult decision.

The current economic environment is supportive of older Americans who want to continue working past traditional retirement age. Unemployment is at near-record low levels, and the sheer mass of retirees leaving the workforce is putting a strain on the ability of employers to fill the positions their former workers leave vacant. That puts older Americans approaching retirement in a favorable position to negotiate with their employers, and many are using that leverage to transition into retirement slowly, by reducing hours or switching to less demanding roles that better fit the overall lifestyle that they want to have in the twilight of their careers.

That said, the potential to lose Social Security benefits by continuing to work is a major impediment for those who want to extend their careers. Fortunately, the rules governing those who work while on Social Security don't apply to people of all ages, and what that means is that once you reach a certain age, you can claim Social Security and work as long as you want without fear of giving up a single penny of your monthly checks.

What happens if I get early Social Security benefits while working?

If you're younger than your FRA and you receive Social Security benefits, then your benefits will be reduced if your earnings from work are more than a certain amount. The amount of the reduction depends on your age and the amount by which your earnings exceed the thresholds the Social Security Administration (SSA) defines each year.

One set of limitations applies to people younger than FRA throughout the whole year, while another set applies if you reach FRA during the year. Special rules also apply if you begin receiving benefits in the middle of a year.

How much will I lose in benefits if I'm working?

The SSA establishes Social Security earnings limits each year and the limit that applies to you depends on what age you start claiming Social Security. This is how you end up forfeiting, or giving up, some of your Social Security income because you're working.

For 2018, those who are younger than FRA throughout the year can earn up to $17,040 per year in wages without losing any of their benefits. Beyond that limit, you'll lose $1 of annual benefits for every $2 you make above that maximium threshold. So if you earned $19,040, then you'd lose $1,000 in benefits -- half of the $2,000 over the limit. The limit for 2019 goes up to $17,640. For those who start taking benefits during the year, the monthly limits are $1,420 and $1,470 respectively for 2018 and 2019, and they apply only to the period of the year during which you receive benefits.

Those who reach FRA during the year have higher limits and less onerous forfeiture provisions. For 2018, you'll lose $1 in annual benefits for every $3 earned above the annual limit of $45,360. The 2019 limit goes up to $46,920. If you reach FRA midyear, then earnings after that date don't count toward the total, but the annual amount isn't prorated, either. In other words, if you earn $10,000 a month but hit FRA at the end of April, then you won't have to lose any benefits even though the $10,000 amount is well above what the prorated monthly amount would suggest.

There's also a special rule that applies to those who intend to retire in the middle of the year. Even if you would otherwise lose your benefits because of the forfeiture provisions, you can still receive full Social Security checks for any month after you start working. So for instance, say you're 63 and decide that you're going to quit your $200,000 a year job at the end of June. You'd forfeit all of your benefits for the first six months of the year because of your high earnings, but starting in July, you could still get checks for the remaining six months even though your total annual earnings were above the annual limit.

When can I get Social Security while working without losing benefits?

Social Security gives workers flexibility in when they decide to claim their retirement benefits, but it creates some incentives for selecting certain ages by having different rules depending on when you decide to make your claim. Specifically, if you wait until your FRA, then you can work and get full benefits no matter how much you earn. What that means is that any work you do after FRA has no impact on the amount of Social Security benefits you receive.

So what is your FRA? The age at which you no longer have to worry about losing Social Security benefits varies depending on when you were born. The table shows the FRA that applies to you if you're claiming your own retirement benefits or spousal benefits.

If You Were Born In...

Your Full Retirement Age for Retirement or Spousal Benefits Is...

1943 to 1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67

Data source: Social Security Administration.

A different table applies for survivors benefits.

If You Were Born In...

Your Full Retirement Age for Survivors Benefits Is...

1945 to 1956

66

1957

66 and 2 months

1958

66 and 4 months

1959

66 and 6 months

1960

66 and 8 months

1961

66 and 10 months

1962 or later

67

Data source: Social Security Administration.

In addition, if you claim benefits before your FRA and the SSA takes away some of your monthly checks as a result, it will stop doing so once you hit the retirement age above. Only those who claim benefits earlier than FRA can suffer potential losses of benefits, and those losses only last for the period until they reach their FRA.

If I forfeit some of my Social Security benefits, do I lose them forever?

Once the SSA figures out how much in benefits you'll have to forfeit, it starts by withholding them from your monthly benefits. It generally does so by withholding entire monthly checks for however long it takes to cover the forfeited amount. So for instance, if you get $1,000 a month from Social Security and your earnings will lead to a forfeiture of $3,000, then the SSA will pay you for nine months but withhold your checks for the other three months.

Forfeiting benefits sounds bad, but there's a silver lining. In exchange for every month's worth of retirement benefits you forfeit, the SSA treats you as if you had decided to claim your benefits a month later than you actually did. That leads to your receiving larger monthly payments from Social Security once you hit FRA than you otherwise would have. Over time, the resulting amount by which each of your monthly benefit checks for the rest of your life goes up should offset your forfeiture losses. You can even end up ahead if you live beyond your average life expectancy.

Special rules for working while getting Social Security disability benefits

The situation for forfeiting disability benefits from Social Security is completely different, because the entire reason why recipients get disability benefits is that the disabled worker can no longer work in gainful employment because of the disabling injury or illness. For most disabled workers, earnings of more than $1,180 per month in 2018 make you ineligible to receive disability benefits. Blind workers have higher earnings limits of $1,970 per month before ineligibility results. The corresponding limits for 2019 are $1,220 and $2,040 per month respectively. These special rules only apply to the disabled worker so family members getting benefits are subject to the normal rules.

Keep in mind that the substantial gainful activity rules are an all-or-nothing test, with no phased-out reduction based on earnings above the threshold. If you make less than the amounts above, then you keep full benefits, and if you make more, then you lose all of your disability benefits. There are no prorated benefits.

How to maximize your Social Security benefits while working

Now that you know all about what can happen to your benefits if you work while on Social Security, the key question is what you can do to make sure that you'll keep all of your Social Security money. The following options will prevent you from being subject to Social Security's forfeiture provisions:

  • You always have the ability to wait until FRA or later before you claim your Social Security benefits. If you do, then you'll be able to earn all you're eligible for without worrying about the earnings tests and whether they apply to you.
  • If you wait until the year that you're going to reach FRA to claim your benefits, then it's easier to avoid losing any of your benefits to forfeiture. That's because the earnings limits are higher in the year that you're due to reach your FRA. Also, those limits only apply to any money you earn up to the month you reach full retirement. So for instance, if your FRA is 67 and your birthday is in May, then only your earnings from January to April will count toward determining if you've gone over the earnings limit for the year.
  • Those who decide to do a phased retirement by reducing their work hours or working a part-time job might find their lower earnings leave them under the thresholds at which forfeitures would occur. That can make it possible to claim your Social Security and keep all of it even while you're still working.

Finally, sometimes surprises can make it impossible to avoid problems. For instance, some early retirees decide they want to go back into the workforce, even though they've already claimed their Social Security and started getting benefits.

If you run into such a situation and only later realize that claiming your Social Security will lead to an unwanted forfeiture of benefits, then you do have a chance to change your mind. The current rules for withdrawing your Social Security application essentially give you up to 12 months to get a do-over on your claiming decision. To do so, you'll need to file the appropriate form with the SSA, and you'll also need to pay back any benefits that you might have received. After that, though, you'll be treated as if you'd never applied. You can only use this feature once in your lifetime, however, so you'll need to be especially careful the second time around to make sure your timing is right.

Using retirement accounts to avoid forfeiting Social Security benefits

All that said, some people still want to supplement their work income in the last years of their careers. If claiming Social Security would only lead to forfeiting some of your benefits, one alternative is to look at tapping retirement accounts like IRAs and 401(k)s. Typically, you can get access to your retirement savings anytime after you turn 59 1/2 without penalty. It's true that you'll owe taxes on the amount you withdraw from any traditional IRA or 401(k) accounts you have, but those who have Roth IRAs can make withdrawals on a tax-free basis without any increase to their tax bill.

Whether that strategy makes sense depends on your tax situation. If you're in a high tax bracket, then drawing money from a traditional IRA or 401(k) that will only add to your immediate tax burden doesn't usually make sense. But if your work income is relatively low, then taking a retirement account distribution can help you bridge the gap between now and reaching FRA -- at which point you'll no longer have to consider potential benefit forfeiture in deciding when to claim your Social Security.

Social Security can help you live the life you desire

Deciding when to stop working can have an impact on your Social Security, but you shouldn't let potential reductions in benefits keep you from making the right life decision. By being aware of the multiple options you have to avoid losing your benefits, you'll be able to manage your career and your benefits exactly the way you want.

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