Back to Work: Avoid This Social Security Benefits Pitfall

As more retirees choose to re-enter the workforce, it's crucial to understand how earnings can impact Social Security benefits. A little-known rule can significantly reduce or even temporarily eliminate your benefits if you're not careful. Let's explore this sneaky rule and help you navigate the complexities of working while receiving Social Security.

The Social Security earnings test is the culprit behind this potential benefits pitfall. If you're under full retirement age (FRA), your benefits may be temporarily reduced or suspended if your earnings exceed a certain limit. In 2024, this limit is $22,320 for those under FRA for the entire year. For every $2 you earn above this limit, $1 will be deducted from your benefits.

For example, if you're 65 and earn $25,000, your benefits would be reduced by $3,080 ($6,040 - $18,960 = $4,080, and $4,080 / 2 = $2,040). This reduction is only temporary, and your benefits will be recalculated and increased once you reach your FRA.



It's essential to report any changes in earnings to the Social Security Administration (SSA) to avoid unexpected reductions in your benefits. If you earn more than initially estimated, the SSA will withhold future benefits to make up the difference. Keep in mind that the earnings test applies only to earned income, such as wages and self-employment earnings. Pensions, annuities, investment income, and other government benefits are not included.

If you're self-employed, you should report your net earnings (after deducting business expenses) to the SSA. The earnings test applies to your net earnings, not your gross income. Be sure to accurately report your earnings to avoid any surprises or penalties.

As you approach your FRA, the earnings test becomes less restrictive. In the year you reach FRA, the earnings limit is $59,520 for the months before your FRA. For every $3 you earn above this limit, $1 will be deducted from your benefits. Once you reach your FRA, there are no earnings limits, and your benefits will not be reduced, regardless of how much you earn.

In conclusion, understanding the Social Security earnings test is crucial for anyone planning to work while receiving benefits. By staying informed and reporting any changes in earnings to the SSA, you can avoid the sneaky benefits pitfall and continue to enjoy your retirement income while working.