Once you retire, Social Security is likely to become a significant part of your income, but it’s essential not to rely solely on it. Typically, Social Security replaces only about 40% of your pre-retirement income, and most retirees need more than that to cover living expenses.
That’s why having additional income outside of Social Security is crucial.
If you’re considering working part-time during retirement or exploring gig economy opportunities, you may worry that earning income could permanently reduce your Social Security benefits. However, this is a common misconception that’s important to clear up.
Understanding the Social Security Earnings Test
The Social Security earnings test applies to individuals who are still working and collecting benefits before reaching full retirement age. If you’re born in 1960 or later, your full retirement age is 67. After you reach that age, you can work as much as you want without it affecting your Social Security benefits.
However, if you start collecting benefits before full retirement age (the earliest you can claim is 62), and you continue working, the earnings test comes into play. The threshold for this test changes annually:
For 2023, if you earn over $23,400, Social Security will withhold $1 for every $2 you earn above that limit.
For those reaching full retirement age by the end of 2025, the threshold rises to $62,160. In this case, Social Security will withhold $1 for every $3 you earn above the limit.
The key takeaway here: withheld benefits are not permanently lost.
Withheld Benefits Aren’t Gone Forever
If some of your Social Security benefits are withheld because you earned over the allowed limit before reaching full retirement age, don’t panic. Once you hit full retirement age, the Social Security Administration will make up for the withheld benefits by increasing your monthly payments.
The only benefits you’ll lose permanently are those you could’ve received if you’d waited to start Social Security at full retirement age. But the withheld benefits are simply delayed and will come back to you later in the form of larger monthly payments.
Don’t Let the Earnings Test Stop You from Working
There are many reasons to continue working during retirement, whether it’s for the extra income, the social interaction, or the routine it creates. Not only can work help improve mental and physical health, but it can also serve as an anchor for your days.
If you don’t have a substantial retirement savings, part-time work may be necessary to meet your needs.
It’s essential to understand that the Social Security earnings test isn’t a barrier to earning in retirement—it’s a temporary delay of some benefits. By continuing to work, you can maintain an active lifestyle while also setting yourself up for higher Social Security payments once you reach full retirement age.
Boost Your Social Security with Little-Known Secrets
Many retirees are unaware of the full potential of their Social Security benefits. One of the most overlooked opportunities could add up to an additional $23,760 per year in Social Security benefits. By maximizing your Social Security strategy, you can increase your income significantly in retirement and retire more confidently.
Don’t let misinformation stop you from working in retirement. Understanding how the Social Security earnings test works and how it affects your benefits will help you make informed decisions about your future.
