Social Security benefits are a lifeline for millions of retirees, bridging the gap between what they have saved and what they need to enjoy retirement comfortably.
If you continue to work either part time or full time after claiming benefits, your monthly payments could be reduced or even withheld entirely depending on how much you're earning. But if you work while claiming Social Security in 2021, you may be able to keep more of your money each month.
How the retirement earnings test affects your benefits
When you claim Social Security benefits before your full retirement age (FRA) and you continue to work, your benefits will be subject to the retirement earnings test. If your earnings surpass a certain limit, your monthly checks will be reduced.
If you're under your FRA throughout 2021, that limit is $18,960 per year. That means if you're earning less than $18,960 per year, your benefits will not be reduced. But if you're earning more than that amount, your payments will be reduced by $1 for every $2 you earn over the annual limit.
If you'll reach your FRA in 2021, your earnings are subject to a different limit of $50,520 per year. For every $3 you earn over that limit, your benefits will be reduced by $1.
In 2020, the annual limits were $18,240 per year and $48,600 per year for those nearing and reaching their FRA, respectively. Because both of these limits are higher in 2021 than in 2020, that means you can earn more without seeing your benefits docked.
What happens if your benefits are reduced?
Regardless of how much you're earning, your benefits will not be permanently reduced. The Social Security Administration (SSA) will recalculate your benefit amount once you reach your FRA, and you'll start receiving larger checks to compensate for the amount that was withheld due to your earnings. In addition, after your FRA, your benefits will not be reduced no matter your income.
Keep in mind, though, that just because you'll collect higher monthly payments later doesn't necessarily mean you'll break even. When your benefits are withheld because of your income, the SSA will distribute that money evenly across your checks after you reach your FRA. If you don't live many years past your FRA, those larger monthly payments may not make up for the amount that was withheld while you were working.
This isn't to say that working while claiming benefits is always a bad idea. In many cases, the extra income supplementing your retirement fund is worth the temporary benefit reductions. And if you expect to live an average or longer-than-average life, the higher payments you'll receive at your FRA will likely make up for the benefits that were withheld.
Working after claiming Social Security benefits can boost your retirement income. Just be sure you know how it will affect your monthly checks.