Social Security is an integral source of income for many retirees, with four out of 10 baby boomers saying their benefits will be their primary income source, according to a 2023 report from the Transamerica Center for Retirement Studies.
But older adults are working longer than ever, too. The report also revealed that roughly half of boomers expect to continue working past age 70 or never retire at all.
It's possible to continue working even after taking Social Security, but it could affect your benefit amount. Depending on your income, your monthly payments could be reduced or even withheld entirely -- but there's good news coming in 2024.
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How working will affect your benefit amount
If you're earning income from a job while collecting Social Security, your wages will be subject to the retirement earnings test. This is essentially an income limit that will determine how much, if any, of your benefits will be withheld.
There are two different income limits depending on whether you've reached your full retirement age (FRA). Your FRA will depend on your birth year, but it's age 67 for anyone born in 1960 or later.
These limits change from year to year, and the good news is that both of them are going up in 2024 -- meaning you can earn more before your benefits are reduced.
| Income Limit in 2024 | Income Limit in 2023 | |
|---|---|---|
| If you won't reach your FRA this year | $22,320 | $21,240 |
| If you will reach your FRA this year | $59,520 | $56,520 |
Source: Social Security Administration
If you won't reach your FRA in 2024, your benefits will be reduced by $1 for every $2 you earn above the $22,320 annual income limit. If you will reach your FRA next year, you'll see a benefit reduction of $1 for every $3 you earn above the $59,520 annual limit.
So, for example, say you're 65 years old with an FRA of 67, and you're earning $40,000 per year from your job. You won't reach your FRA in 2024, and your income is $17,680 above the income limit. That means your benefits would be reduced by $8,840 per year, or around $737 per month.
These reductions are only temporary
Fortunately, if your benefits are reduced due to your income, it's only temporary. Once you reach your FRA, the Social Security Administration will recalculate your benefit to account for the money that was withheld. From then on, you'll receive larger checks each month.
Also, once you're past your FRA, your income will no longer be subject to the income limits. So no matter how much you earn, your benefits won't be reduced.
However, if you still have several years until your FRA, these income limits can significantly limit how much you receive from Social Security. For those who are relying on both their benefits and income from a job to make ends meet, it can be even tougher to afford retirement.
The best thing you can do, then, is simply understand how your income will affect your benefits. You may not have any control over the income limits or how much your payments are reduced, but when you know what to expect, it may be easier to prepare.
