Working While Receiving Social Security

Many retirees don’t fully retire. Whether for financial reasons, to stay active, or to pursue a passion, continuing to work after claiming Social Security benefits is a common choice. But how does working affect your Social Security benefits? The answer depends on your age, income, and when you claim.

Let's break down how working while receiving Social Security impacts your benefits, what you need to be aware of if you claim before Full Retirement Age (FRA), and how working after FRA can still be a beneficial financial move.

How Social Security Works If You’re Still Earning

You can claim Social Security benefits as early as age 62. Still, suppose you start collecting before your FRA and continue working. In that case, your benefits may be temporarily reduced depending on how much you earn. The Social Security earnings test comes into play here, and the rules are essential to understand.

If you’re under your Full Retirement Age and your earnings exceed a specific limit, Social Security may withhold a portion of your benefits. However, once you reach FRA, the earnings limit disappears, and you can work without affecting your Social Security payments.

The Earnings Limit: How It Affects Your Benefits

In 2025, if you are under FRA and receiving Social Security, you can earn up to $23,400 per year without any reduction in your benefits. If you earn more than that, Social Security will withhold $1 in benefits for every $2 you earn over the limit.

For example, if you’re 64 and earn $25,000 in a year while receiving Social Security, you’re $3,760 over the limit. In this case, Social Security would withhold $1,880 from your benefits for that year. The withheld benefits aren’t lost, however - they’re recalculated once you reach Full Retirement Age and are added back into your benefit over time.

In the year you reach FRA, the rules are more lenient. You can earn up to $56,520 in the months leading up to your birthday without any reduction in benefits. If you earn more than this, Social Security will withhold $1 for every $3 you earn over the limit.

Once you reach your Full Retirement Age, there’s no earnings limit, and you can work and earn as much as you like without affecting your Social Security payments.

What Happens to Withheld Benefits?

If your benefits are reduced because of the earnings test, the money isn’t gone forever. When you reach Full Retirement Age, Social Security recalculates your benefits to account for the months when benefits were withheld. In other words, you’ll receive a slightly higher monthly benefit going forward to make up for what was withheld earlier.

This recalculation doesn’t fully replace the withheld benefits, but it does ensure you receive some compensation for the reduction. The exact increase depends on how many months you lost benefits and how close you were to your FRA when the benefits were withheld.

Why Continue Working After Claiming Social Security?

Despite the earnings test and potential benefit reductions, many people choose to continue working after claiming Social Security. Here’s why:

• Increasing Your Monthly Benefit - Even if your benefits are reduced by the earnings test, continuing to work could increase your future Social Security payments. Since your Social Security benefit is based on your highest 35 years of earnings, earning more in your later years can replace lower-earning years earlier in your career. This could result in a higher overall benefit.

• Supplementing Retirement Income - Social Security alone isn’t enough for many retirees to cover all their living expenses. Working part-time or full-time can provide additional income to bridge that gap while also allowing you to delay tapping into other retirement accounts, such as IRAs or 401(k)s.

• Health and Longevity Considerations - Staying active and engaged through work can have physical and mental health benefits. For some, the structure and purpose provided by work contribute to a higher quality of life in retirement.

• Delayed Claiming Strategy for Spouses - If one spouse continues working while the other delays claiming their Social Security benefits, it can boost the household’s long-term income. Delaying benefits past Full Retirement Age increases payments by 8% per year until age 70. This strategy can be especially effective if the spouse delaying benefits is the higher earner.

The Impact of Taxes on Social Security Benefits

Working while receiving Social Security benefits can also impact your taxes. If you have additional income from wages or other sources, part of your Social Security benefits may become taxable. The IRS uses a formula called provisional income to determine how much of your benefits are subject to federal taxes.

Provisional income includes:

• Your adjusted gross income (AGI)
• Nontaxable interest (such as from municipal bonds)
• Half of your Social Security benefits

If your provisional income is above a certain threshold, up to 85% of your Social Security benefits could be taxed:

• If your provisional income is between $25,000 and $34,000 (for individuals) or $32,000 and $44,000 (for married couples), up to 50% of your benefits may be taxed.
• If your provisional income exceeds $34,000 (individuals) or $44,000 (married couples), up to 85% of your benefits may be taxed.

It’s important to factor in this potential tax burden when planning to work and collect Social Security simultaneously. A careful strategy for managing retirement income and withdrawals from tax-advantaged accounts can help you minimize taxes on your Social Security benefits.

The Earnings Test and Survivor Benefits

If you’re receiving survivor benefits, the earnings test also applies if you claim before Full Retirement Age. The same earnings limits apply, and your benefits could be reduced if you earn more than the limit. However, once you reach FRA, you can work without any reduction in your survivor benefits.

This is especially important to consider if you are a widow or widower planning to continue working after your spouse has passed away. Coordinating your survivor benefits and earnings can ensure you maximize your income.

Key Points

• If you claim Social Security before Full Retirement Age and continue working, the earnings test could reduce your benefits if you earn more than the annual limit ($23,400 in 2025).

• The reduction is temporary, and withheld benefits are recalculated once you reach Full Retirement Age.

• Once you reach Full Retirement Age, you can work and earn as much as you want without affecting your Social Security payments.

• Continuing to work after claiming Social Security can increase your overall benefit if your earnings replace lower-earning years in your work history.

• Be mindful of how additional earnings may impact the taxation of your Social Security benefits.

The Takeaway

Working while receiving Social Security can be a smart financial move, but it requires careful planning to avoid unintended reductions in benefits or tax consequences. Whether you plan to work full-time, part-time, or pursue new ventures in retirement, understanding how the earnings test and tax rules work can help you make the most of your Social Security income.