You can collect your Social Security benefits if you are still working and earning income. But, if you earn more than a certain amount from your work—and if you still haven't reached full retirement age yet—your benefit checks will be smaller. Here's a rundown so you'll know what income reduces your Social Security benefits.

Key Takeaways

  • You can get both Social Security and work at the same time, but your benefits will likely be reduced.
  • If you have reached full retirement age, you can keep all of your benefits, no matter how much you earn.
  • If you haven't reached full retirement age, Social Security will deduct $1 from your benefits for every $2 you earn above a certain amount.

Background

Remember the days when you could actually retire when you reached a certain age? You could travel, spend time with your grandchildren, and reconnect with your spouse after decades of hard work.

With an increasing number of people unable to save enough to live out their later years playing golf and traveling, many are spending retirement working another job, if they retire at all. Of course, some people just enjoy working and want to continue their careers—or embark on a new one—during retirement.

If you keep working after you start receiving Social Security benefits, your eligibility for full payment gets complicated.

Social Security Credits

Qualifying for Social Security isn’t that difficult. Over the course of your working life, you need 40 credits to be eligible for full benefits. Prior to 1978, that equaled 10 years of full-time work, but today credits are tied to wages.

In 2020, you get one credit for each $1,410 of earnings, up to a maximum of four credits per year. That amount goes up slightly each year as average earnings increase.

Social Security calculates your benefit amount based on earnings, whether you were self-employed or worked for a company. The more money you earn, the more you pay into Social Security—and the higher your future benefits. The math is much more complicated than it sounds, but that’s basically how it works.

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Can I Work While Collecting Social Security?

Full Retirement Age

Full retirement age is between age 65 and 67, depending on the year you were born. Assuming your full retirement age is 67, you can start taking benefits as early as age 62, but your benefit will be 30% less than if you wait until age 67.

If you don’t need your Social Security benefits at full retirement age, you can wait until age 70. That will give you the maximum benefit each month. There's no advantage to waiting past age 70 to start collecting benefits.

What Income Reduces Benefits

More than 63 million people—or more than one in six U.S. residents—collect Social Security benefits. The average Social Security retirement benefit in June 2019 was $1,470 a month, or about $17,640 a year. While those monthly checks help, it's not usually enough to cover expenses. That's one reason why people are working longer.

If you work, the money you earn may affect your Social Security benefits—but it depends on your age and how much you earn. Remember that although your full retirement age might be 67, you can start receiving benefits at 62, even if you're still working.

But here's the catch. If you start benefits prior to full retirement age, you can only earn up to $18,240 (the limit for 2020) and still get your full benefits. Once you earn more than the limit, Social Security deducts $1 from your benefits for every $2 you earn.

In the year you reach full retirement age, Social Security becomes far more forgiving. If you earn more than $48,600, $1 is deducted for every $3 you earn—but only during the months before you reach full retirement age. Once you reach full retirement age, you can earn any amount of money, and it won't reduce your monthly benefits.

How Does Social Security Know?

All of these numbers seem quite specific, but how does the Social Security Administration have the time to track you and your earnings? The answer: it doesn’t. It’s your job to report your earnings.

“The biggest thing to remember if you are working is to notify the Social Security Administration if you're going to earn wages in excess of the earnings threshold," says Matt Ahrens, an associate financial advisor at Integrity Advisory Group.

"They will not be notified of your earnings until you file your taxes the following year. And if you were receiving excess benefits, you can be fined, forced to pay back the excess, or receive lower future benefits.”

Working Outside of the United States

If you are younger than full retirement age, Social Security withholds benefits for every month you work more than 45 hours. The rules can get complicated, so ask a Social Security representative for help.

The Bottom Line

If you paid into Social Security long enough to earn 40 credits and have reached your full retirement age, you can make as much money as you would like without being penalized.

If you receive benefits earlier, do the calculations to decide whether working and receiving a reduced amount in early benefits makes financial sense. The situation is different for those receiving Social Security disability benefits, so contact a Social Security office for help.