Have you claimed Social Security and are now thinking about getting a job? If so, there are some important rules about working while collecting Social Security that could affect the amount of benefits you get.
Depending on the circumstances, you could either see your benefits temporarily decline or permanently increase as a result. Here's an overview of those rules.
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1. Social Security work-limit rules
The first rule you should know relates to how much you can earn while still collecting Social Security benefits. That depends on how old you are relative to your full retirement age (FRA), which is the age at which you first become eligible for a standard unreduced Social Security check. For anyone born in 1960 or after, FRA is 67.
Here's how the work rules will affect you, based on whether you're older or younger than your FRA:
- If you've reached FRA: You can work as much as you want without any impact on your Social Security checks.
- If you'll reach FRA at some point during the year but haven't yet: You can earn up to $65,160 without an impact on benefits. Earnings above this amount will reduce your benefit by $1 for every $3 in extra you earn.
- If you won't reach FRA during the year: You can earn as much as $24,480 before your Social Security will be affected. After that point, you'll lose $1 in benefits for every $2 extra dollars earned.
Entire Social Security checks can be withheld to account for the benefits you forfeit by working. When you finally do reach full retirement age, the Social Security Administration (SSA) will increase your benefit by a small amount for each month that no check came because you were above the work limits.
Unfortunately, if your retirement planning process is based on working while collecting Social Security, be aware that these rules may throw a wrench into your plans. Since double-dipping with Social Security and a paycheck isn't always possible as a young retiree, you may need to draw more money from a 401(k) or IRA to account for the benefits you give up when your earnings are too high.
2. Social Security rules on how wages affect your AIMEs
The second rule you should know relates to how earning wages in retirement affects your average indexed monthly earnings (AIME), which is based on an inflation-adjusted average of your wages during your highest 35 earning years. Your monthly Social Security benefit equals a percentage of your AIME.
If you work while collecting Social Security, the income you earn is still eligible to become part of your benefits formula. If you're earning more now than during earlier years of your career, the current year(s) of work could replace earlier lower-earning years and cause your AIME -- and thus your benefits -- to increase.
It's important to be aware of these rules so you're prepared for how working could affect the Social Security you collect.
