Social Security currently pays benefits to more than 60 million Americans, and the majority of them receive money from the old-age side of the program. The most common age for people to claim their retirement benefits is 62, and many of them still keep their jobs and decide to supplement their income by claiming their Social Security.
You don't have to stop working to receive your retirement benefits from Social Security. However, there are some provisions that will affect some workers who take early retirement benefits while still earning a paycheck. Specifically, if your earnings from work are above the limits that Social Security sets each year, then you might have to forfeit some of your benefits back to the Social Security Administration. Fortunately, those earnings limits typically go up every year, and workers in 2020 will be able to make a little bit more money before they'd have to give anything back.
How Social Security's earnings test works
There are a couple of aspects to the Social Security earnings test that recipients should understand -- ideally before they claim early retirement benefits. First, the provision only applies to those who are younger than full retirement age. If you've already reached that key age, then you can earn as much as you want and still get your full Social Security benefits.
Also, there are two sets of earnings test numbers that apply to people of different ages. If you'll remain younger than your full retirement age throughout 2020, then you'll be able to earn up to $18,240 over the course of the year without having to give up any of your benefits. That figure is up $600 from 2019's numbers. Above the $18,240 mark, you'll have to give up $1 in annual benefits for every $2 you earn over the threshold. So if your earnings come to $20,000 for the year, then that's $1,760 over the limit, so you'd have to forfeit half that, or $880.
Those who will reach full retirement age at some point during 2020 face a different set of numbers. You can earn up to $48,600 in 2020 without triggering forfeiture provisions, and the reduction is $1 in benefits for every $3 above the threshold. The $48,600 figure is $1,680 higher than the corresponding number for 2019. One other thing to keep in mind is that only the portion of earnings you have before reaching full retirement age counts toward the limit. So if you hit full retirement age in June 2020, then you can earn as much as you want during the second half of the year without any adverse effects on your benefits.
Why giving back benefits isn't quite as bad as it seems
Giving back money to the federal government always sounds like a bad move. However, with the earnings test, there is a silver lining if your benefits get taken away.
Here's how it works: For every month's worth of benefits you have to pay back to the Social Security Administration, you'll be treated as if you had claimed your retirement benefits a month later than you actually did. When you reach full retirement age, your benefit amount will get adjusted upward to account for the extra time the SSA credits you with after forfeiting benefits. Over time, those higher payments can eventually catch up with the amount of money you lost.
Making the right decision
The best strategy to follow with Social Security when you're still working depends on how much money you make. If your earnings are squarely below the limits, then you can make an informed decision based on your financial needs and other factors. However, if you make more than the limit, you might want to think twice about taking early benefits at all. The more of your Social Security you end up having to give back, the less it makes sense to make your Social Security claim early in the first place.