Millions of Americans look forward to the day they can claim their Social Security benefits and start enjoying retirement income from this entitlement program they've contributed to throughout their careers.

These checks from the Social Security Administration are often an important source of income for older Americans, providing at least half of household income for 50% of senior married couples and 70% of unmarried retirees.

Unfortunately, close to three-quarters of Americans are currently making plans that could lead to the forfeiture of at least some Social Security benefits in retirement -- if only temporarily. 

Older man grabbing piggy bank away from outstretched hands.

Image source: Getty Images.

Are you at risk of losing some retirement benefits?

Americans preparing for retirement may be unaware that one key choice they're making could lead to a reduction in their future Social Security checks. That choice is the decision to hold a job in their later years. 

According to a survey by retirement-advice site SimplyWise, 74% of current workers intend to keep working even after they claim Social Security benefits. And that could have financial consequences. 

Every Social Security recipient has a full retirement age (FRA). Depending on when you were born, it could be as early as 66 and 2 months or as late as 67.

Once you reach FRA, you can work as much as you want. You'll still keep all your benefits.

But if you claim benefits prior to your FRA and you work while collecting them, you're subject to a retirement earnings test. Under this test, when your income goes above a certain threshold, some of your Social Security money is held back. Specifically:

  • If you're under FRA for the full year, you'll lose $1 for every $2 earned over $18,960, as of 2021 (this limit goes up each year). 
  • If you're under FRA for just part of the year, you'll lose $1 for every $3 earned over $50,520 (again, as of 2021). 

If you forfeit some benefits, the money isn't necessarily gone forever. When you hit your full retirement age, the Social Security Administration recalculates your benefit and increases your check based on the income you missed. But because of the method used to do this, it takes many years to make up for the checks you didn't get at the time. And there's a chance you won't live long enough for this to happen. 

This doesn't mean that you shouldn't ever work while collecting benefits. In fact, there are substantial advantages to continuing to earn income in retirement if you can. But it does mean that you cannot necessarily count on getting both a paycheck and your full benefit check to help you make ends meet during the early years of your retirement.

If you plan to work after filing for benefits because you think you'll need both Social Security and a paycheck to survive as a retiree, you need to rethink your plans for where your income will come from. This likely means boosting your savings to cover the shortfall that could result from losing retirement benefits due to the earnings test.