Taking a Job While on Social Security? Know the Earnings Limit That Can Reduce Your Benefit

Accepting a job while you’re already collecting Social Security may sound like an easy way to improve your finances, but one lesser-known rule can reduce your monthly benefit before you expect it.

In today’s labor market, many people are having a hard time finding work. But if you have skills that are in high demand, you may receive a job offer anyway, whether it is for a full-time position, part-time work, or consulting. If Social Security is not covering your bills, taking that offer may seem appealing.

The reality is that depending only on Social Security can be tough. For someone receiving an average benefit, that comes out to roughly $25,000 a year.

Even people entitled to a larger benefit usually receive only about 40% of their pre-retirement pay from Social Security. Since many retirees need more than that, a job offer can be tempting even for someone who thought they were done working.

Before accepting work while collecting benefits, it is important to understand one key rule: the earnings test. Without that knowledge, you could be caught off guard.

The Social Security earnings limit you need to understand

You are allowed to earn wages while receiving Social Security. However, if you have not yet reached your full retirement age, the earnings test applies.

This test determines how much you can make from work each year before some or all of your benefits may be withheld. The limit changes from year to year. For recipients who have not yet reached full retirement age and will not do so by the end of the year, the limit is $24,480.

If you go over that amount, your Social Security check is not automatically eliminated. Instead, the Social Security Administration withholds $1 in benefits for every $2 you earn above the limit.

If your earnings are high enough, you could lose the full check, though that does not always happen. In many cases, only part of the benefit is withheld.

It is also worth noting that the benefits withheld because of excess earnings are not truly gone forever. Once you reach full retirement age, the Social Security Administration should adjust your benefit upward to account for what was withheld. In other words, the loss is usually temporary.

Even so, losing part of your Social Security payment can disrupt your budget. That is why it is important to know how much you can earn without running into trouble before you accept a job.

Other rules worth keeping in mind

If you plan to work while collecting Social Security, it helps to understand the earnings test fully. The rules are different for people who work in the year they reach full retirement age.

For those who have not yet reached full retirement age but will do so by the end of the year, the higher earnings test limit is $65,160. Above that level, the SSA withholds $1 in benefits for every $2 earned.

Only wages from work count toward the earnings test. For example, dividends from a portfolio do not count.

That means withdrawals from savings or investment income used to supplement Social Security benefits generally are not a problem. The rule applies to earned wages, not passive income.