There are plenty of benefits to holding down a job during retirement. For one thing, the extra income might come in handy, especially if you're pretty low on personal savings.
Northwestern Mutual reports that the average 60-something today has only $112,500 in retirement savings, while the average 70-something has $113,900. Neither figure represents a particularly large nest egg. So if you have a comparable amount of savings, you might need a job to supplement your withdrawals and Social Security benefits.
Even if you're doing OK financially as a senior, working can still have benefits. A job could help structure your weeks and serve as a social outlet. It can also keep you from getting bored, to the point where it begins to have an effect on your mental health.
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Now one thing you should know is that you're absolutely allowed to work while collecting Social Security. But your age and income will determine whether that job of yours affects the Social Security benefits you receive.
Moderate wages could result in withheld benefits
Let's get one thing out of the way. Once you reach full retirement age (FRA) for Social Security purposes, you can earn any amount of money you want without affecting your benefits. It's only when you're working prior to having reached FRA that you have to be mindful of the earnings-test limits. These limits dictate how much income you can earn before you risk having benefits withheld.
In 2023, you can earn a total of $21,240 before it affects your benefits. From there, you'll have $1 in Social Security withheld per $2 of income. If you're reaching FRA this year, that limit rises to $56,520. And beyond that, you'll have $1 in Social Security withheld per $3 of income.
In 2024, these limits are going up. You'll be able to earn up to $22,320 without having your benefits impacted, or $59,520 if you'll be reaching FRA next year. Beyond these limits, you'll risk having $1 in Social Security withheld per $2 or of income if you're not reaching FRA in 2024 or per $3 of income if you are reaching FRA.
Now it's worth noting that withheld Social Security benefits are not forfeited. They're simply paid to you later on, once you reach FRA.
But do remember that if you're collecting benefits before having reached FRA, it means you're accepting a lower monthly paycheck from Social Security for life. So if you're going to take that hit, it stands to reason that you'd want to collect as much of that income as you can.
Know the rules
Holding down a job could be a smart thing to do in retirement. But it is important to understand how earning an income could impact your Social Security benefits.
The good news is that if you wait until FRA to file for Social Security, you'll not only avoid a reduction in benefits, but you also won't have to concern yourself with the earnings-test limit whatsoever. So for these reasons, sitting tight until FRA or even beyond could really pay off.
