You might assume that the only reason people work during retirement is because they need the money. In reality, working can be a good way to keep busy and maintain social connections.

Plus, some people thrive on routine. If you're one of them, you may decide to work a few hours or days a week in retirement -- even if that job is done remotely and doesn't involve social interaction at all.

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Not only can working in retirement be good for your financial and mental health, but you're allowed to do it while collecting Social Security. And once you reach full retirement age, your earnings from a job won't have any sort of negative impact on your monthly Social Security paycheck.

But if you don't wait until full retirement age to claim Social Security, you'll be subject to an earnings test if you work. And not understanding it could throw off your budget in a serious way.

How Social Security's earnings test works

Under Social Security's earnings test, there's a yearly limit that dictates how much you can earn before having benefits withheld.

In 2024, you'll have $1 in Social Security withheld per $2 of earnings above $24,480 if you won't reach full retirement age by the end of the year. If you will reach full retirement age by Dec. 31, you'll only have $1 in Social Security withheld per $3 of income above $65,160 [https://www.ssa.gov/news/en/cola/factsheets/2026.html.

Once you reach full retirement age, the earnings test goes away. So if you're working now and will reach full retirement age in August, any income you earn in August or beyond isn't subject to the earnings test.

Another key point to understand

It's important to know how much leeway you have to earn money from a job without having Social Security withheld. That's because smaller checks could have an impact on your ability to pay for your essential expenses.

It's also important to know that withheld benefits aren't taken away permanently. Once you reach full retirement age, your monthly benefits are recalculated, and you get credit for the money withheld from you.

The math still needs to work for you

If your Social Security benefits are just bonus money for you, this isn't such a bad system, since you should be made whole on your withheld benefits. Rather, the earnings test is more of a problem for retirees who need their Social Security benefits plus their wages from work to stay afloat.

Let's say you're eligible for $2,000 a month in Social Security, but you need $60,000 a year to pay your expenses. If you're 63 and you work to earn the remaining $36,000 you need, you'll be over the earnings test limit. So that's an issue.

Thankfully, it's one you can plan for if you know the rules. You may, for example, be able to reduce spending temporarily so you're able to keep your income just low enough to avoid withheld benefits.

But it all comes down to understanding the ins and outs of the earnings test. So it's something you should familiarize yourself with if you're collecting Social Security, haven't reached full retirement age, and have or intend to have a job.