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What Income Reduces Social Security Benefits?

Working can mean lower benefits until you reach full retirement age

You can collect Social Security benefits if you are still working and earning income. But if you earn more than a certain amount from your work—and haven't reached your full retirement age—your benefit will temporarily be smaller. Here's a rundown of how earned income can reduce your Social Security benefits.

Key Takeaways

  • You can get Social Security and work at the same time, but your monthly benefit may be reduced.
  • If you have reached full retirement age, you can receive your entire benefit, 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 or $3 you earn above a certain amount.
  • After you reach full retirement age, Social Security will increase your benefits to account for the money it withheld earlier.
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Can I Work While Collecting Social Security?

Working During "Retirement"

Remember the days when you could actually retire when you reached a certain age? You could travel, pursue hobbies, and spend more time with family and friends after decades of hard work.

With an increasing number of people unable to save enough to live out their later years in leisure, 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 do something else that keeps them in the work world—during retirement.

Whatever your motivation, if you keep working after you start receiving Social Security, your eligibility for full benefits gets complicated.

How Social Security Credits Work

Qualifying for Social Security isn't that difficult. Over the course of your working life, you need 40 credits to be eligible for benefits, which is equal to 10 years of full-time work. In 2021, you get one credit for each $1,470 of earnings ($1,510 in 2022), up to a maximum of four credits per year.

Social Security calculates your benefit amount based on your earnings over the years, whether you were self-employed or worked for an employer. The more money you earned, the more you paid into Social Security—and the higher your future benefits—up to certain limits. The math is much more complicated than this sounds, but that's basically how it works.

What Is Full Retirement Age?

For Social Security purposes, your full or "normal" retirement age is between age 65 and 67, depending on the year you were born. If, for example, your full retirement age is 67, you can start taking benefits as early as age 62, but your benefit will permanently be 30% less than if you wait until age 67.

If you can manage without receiving 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.

Social Security Income Limits

The Social Security Administration (SSA) reported in October 2021 that the estimated average monthly retirement benefit will be $1,657. While that regular monthly income helps, it's usually not enough to cover living expenses. That's one reason many people are working longer.

If you work, the money you bring home can affect your Social Security benefits—but the specifics depend 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: For the 2021 tax year, if you start benefits before full retirement age, you can only earn up to $18,960 ($19,560 for 2022) 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 more forgiving. If you earn more than $50,520 ($51,960 for 2022) it deducts $1 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.

Note, however, that any money deducted from your benefit is not permanently lost. After you reach full retirement age, Social Security will recalculate your benefit and increase it to account for the benefits that it withheld earlier.

70 million

The number of people expected to collect some type of Social Security benefit in 2022.

How Does Social Security Know?

You might wonder how the Social Security Administration keeps track of your work and your earnings. The answer: It doesn't. It's your responsibility to report how much you've made.

"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.

Otherwise, he notes, "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 retire and work outside the United States, the rules are different. If you are younger than full retirement age, Social Security will reduce your benefits for every month you work more than 45 hours in a job (or self-employment) that's not subject to U.S. Social Security taxes. That applies regardless of how much money you earn. These rules can get complicated, so you'll want to contact Social Security for advice on your particular situation.

Can You Collect Social Security at 62 and Still Work?

You can collect Social Security retirement benefits at age 62 and still work. If you earn over a certain amount, however, your benefits will be temporarily reduced until you reach full retirement age.

What Is Full Retirement Age?

Full retirement age is the age at which you become eligible to receive full benefits from Social Security. It is 66 years and two months for those born in 1955 and gradually increases to 67 for those born in 1960 and after.

How Much Can I Earn and Still Collect Social Security?

If you start collecting benefits before reaching full retirement age, you can earn a maximum of $18,960 in 2021 ($19,560 for 2022) and still get your full benefits. Once you earn more, Social Security deducts $1 from your benefits for every $2 earned.

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 like without having your Social Security benefits reduced. If you start collecting benefits earlier and earn over a certain amount, a portion of your benefits will be withheld. But once you reach full retirement age, Social Security will recalculate your benefit to make up for the money it withheld earlier.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Social Security Administration. "2022 Social Security Changes - Cost-of-Living Adjustment (COLA)," Page 1. Accessed Dec. 14, 2021.

  2. Social Security Administration. "Social Security Credits." Accessed Dec. 14, 2021.

  3. Social Security Administration. "Starting Your Retirement Benefits Early." Accessed Dec. 14, 2021.

  4. Social Security Administration. "Delayed Retirement Credits." Accessed Dec. 14, 2021.

  5. Social Security Administration. "Social Security Benefits Increase in 2022." Accessed Dec. 14, 2021.

  6. Social Security Administration. "2022 Social Security Changes." Accessed Dec. 14, 2021.

  7. Social Security Administration. "2022 Social Security Changes - Cost-of-Living Adjustment (COLA)." Accessed Dec. 14, 2021.

  8. Social Security Administration. "Receiving Benefits While Working." Accessed Dec. 14, 2021.

  9. Social Security Administration. "Your Payments While You Are Outside the United States," Page 14. Accessed Dec. 14, 2021.

  10. Social Security Administration. “Retirement Benefits: Full Retirement and Age 62 Benefit by Year of Birth.” Accessed Dec. 14, 2021. 

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