Social Security can go a long way in retirement, but many seniors may struggle financially even with the help of their benefits.
According to Vanguard's 2023 How America Saves report, the median 401(k) balance among Vanguard account holders age 65 and older is just $70,620. Furthermore, the average retired worker collects just over $1,900 per month from Social Security, as of April 2024.
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If your savings run out and Social Security alone isn't enough to make ends meet, a smart solution may be to continue working after you retire. This is becoming a more popular solution among older adults, with around half of baby boomers saying they plan to continue working past age 70, according to a 2023 report from the Transamerica Center for Retirement Studies.
While this can be a good way to increase your savings and build a more financially secure future, working in retirement can affect your Social Security benefits in a major way. Here's what you need to know.
How working will affect your Social Security
Technically, it's possible to continue working after you file for Social Security benefits. But depending on how much you're earning from your job, it could result in drastic benefit cuts -- or your payments could even be withheld entirely.
There are two main factors that will determine how much, if any, of your benefits are withheld: your age and your job earnings.
Your earnings will only affect your Social Security if you're under your full retirement age (FRA), which is age 67 for anyone born in 1960 or later.
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If you haven't yet reached your FRA, your income will be subject to the retirement earnings test. This is an income limit that will determine how much of your benefits will be withheld, and there are two different limits you could face: one for when you're well below your FRA, and another for the year you reach your FRA.
The limits change from year to year to account for inflation, but here's where they stand right now depending on whether you will or will not reach your FRA in 2024:
| Annual Income Limit | Benefit Reductions | |
|---|---|---|
| If you will not reach your FRA in 2024 | $22,320 | $1 benefit reduction for every $2 over the limit |
| If you will reach your FRA in 2024 | $59,520 | $1 benefit reduction for every $3 over the limit |
Source: Social Security Administration. Table by author.
If you won't reach your FRA this year, the benefit reductions can hit much harder. For example, say you're 62 years old with an FRA of 67, and you're working full-time earning $50,000 per year while taking Social Security.
You won't reach your FRA this year, so you'll be subject to the $22,320 annual limit. Your income is $27,680 over that limit, which means your benefits will be reduced by $13,840 per year -- or a whopping $1,153 per month.
The good news is that these reductions aren't permanent. You'll start receiving larger checks at your FRA to account for the money withheld, and from that point on, your income will no longer affect your benefits.
Is it worth it to continue working while on Social Security?
Despite the benefit reductions, it can still sometimes be worth working while taking Social Security.
For example, say you retire and claim benefits in your early 60s, but you quickly realize that your savings aren't enough to sustain you throughout your entire retirement. Even if going back to work temporarily reduces your benefits, it can help you avoid draining your retirement fund too quickly. As a bonus, you'll start receiving larger checks at your FRA, which can go a long way if your savings eventually run dry.
While not everyone has this option, it's often best to decide whether you want to continue working before you claim Social Security. If you know that you want to keep working at least until your FRA, holding off on claiming benefits can both prevent reductions and help you earn higher payments each month.
It's possible to work while taking Social Security, but it's important to know how it will affect your benefit amount. By understanding the earnings limits and planning accordingly, you can head into retirement as prepared as possible.
