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Here’s How Working in Retirement Will Affect Your Social Security

(Photo: iStock)

Your income while working in retirement could potentially reduce by hundreds of dollars per month, however, there is still good news about these benefit deductions.

(Photo: iStock)

Do you ever think of working in retirement? Well, guess what, you are not alone. Around 49% of baby boomers say that they want to keep working on retirement or never retire at all, according to a 20233 report from the Transamerica Center for Retirement Studies.


According to the Motley Fool, in some cases, working in retirement when you have already started collecting Social Security could reduce your benefits. To avoid any surprises, it is important to know how working in retirement will affect you monthly checks.


You might ask how working in retirement will affect your Social Security. Well, if you are still earning income from a job after you have filed for Social Securuty, your wages will be subject to the annual earnings test. This is essentially an income limit to determine how much your benefits will be deducted based on your earnings while working in retirement.


The earnings test limits changes from year to year to account for inflations, and there are two different limits depending on your age. If you have not reached your full retirement age (age 67 for anyone born in 1960 or later), the limit is $21,240 per year in 2023. For every $2 that you will earn above that limit, your benefits will be reduced by $1. If you reach your FRA this year, there is a different limit of $56,520 per year. During the months leading up to your FRA, your benefits will be reduced by $1 for every $3 you earn above the limit.

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Depending on how much you earn while working in retirement, it is possible to have your entire benefit amount withheld if your income while working in retirement is far enough above the limit.


However, there is a good news about working in retirement while on Social Security. It can be discouraging to have the benefits reduced because of your income, especially if you needed the extra cash. But the good news is that these reductions are only temporary.


Once you have reached your FRA, the Social Secuirty Administration will recalculate your benefit amount to account for the money that was withheld. From then on, you will receive larger checks to make up for the deductions.  Also, after your FRA, any income that you earn while working in retirement will not be subjected to the earnings test. In other words, your benefits will not be reduced no matter how much your earn. 


Social Security can be quite confusing, especially when it comes to working while you are collecting you benefits, but the earnings test can have a dramatic effect on your monthly payments. The more that you are aware of how your income will impact your benefits, the more prepared you will be.

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