You might assume that people only continue working after retirement for financial reasons. But, you know, there’s more to it. Many folks find that having a job keeps them engaged and helps them stay socially connected.
Then, there are those who thrive on having a set routine. If that sounds like you, maybe working a few hours or days a week post-retirement feels right—even if it’s from home and involves little to no social interaction.
On top of this, staying employed can be beneficial not just for your wallet but also for your mental well-being. Also, it’s worth noting that you can actually work while collecting Social Security benefits. Once you hit your full retirement age, any income you earn won’t reduce your monthly payments from Social Security.
However, if you begin claiming Social Security before reaching full retirement age, and you’re still working, there’s a means test that comes into play. It’s kind of crucial to understand this, or it could unwittingly mess with your budget.
Understanding the Social Security income test
The means test established by Social Security puts a cap on how much you can earn before your benefits get reduced.
For example, in 2024, if you haven’t reached your full retirement age by year’s end, benefits will be reduced by $1 for every $2 you earn above $24,480. But if you hit that full retirement age by December 31st, the threshold changes to $1 withheld for every $3 earned above $65,160.
Importantly, once you reach full retirement age, the income test is no longer applicable. So, if you’re working and achieve that age in August, your earnings after that month won’t factor into the means test.
Key things to keep in mind
Understanding how much you can earn without facing deductions from Social Security is vital. A small payment could genuinely impact your ability to cover necessary expenses.
Also, it’s good to know that if your benefits are withheld, they aren’t permanently gone. Once you hit retirement age, your monthly benefit will be recalculated, and those withheld amounts will be restored.
Don’t forget the numbers
If your Social Security payments are more like a bonus, the system might not seem too cumbersome. But it can become a headache for those who actually depend on both wages and benefits to make ends meet.
Consider this scenario: you’re eligible for $2,000 a month in Social Security, but your yearly expenses are $60,000. If you’re 63 and need to earn an additional $36,000, you’ll eventually breach that earnings limit, which is problematic.
The good news? With a bit of planning, you can navigate this. Maybe you can manage to temporarily cut back on expenses to keep your income below the threshold that garners a benefit reduction.
Ultimately, it’s all about grasping the specifics of the earnings test. If you’re collecting Social Security and haven’t hit full retirement age yet, and you have or plan to have a job, it’s super important to be aware of these details.
