While there’s no universal cap on post-retirement work hours, the number can impact Social Security benefits and taxes, depending on your age and earnings. Retirees under the full retirement age may see a temporary reduction in benefits if their income exceeds certain limits.
If you need help balancing work and retirement, a financial advisor can work with you to minimize taxes and maximize benefits.
How Working Can Affect Your Social Security Benefits
Understanding how working affects your Social Security benefits at different stages of retirement is important for financial planning. If you want to continue working, knowing the specific thresholds and how they impact your benefits can help you make informed decisions about when to start claiming Social Security.
Before Full Retirement Age
If you have not reached your full retirement age (FRA), working can temporarily reduce your Social Security benefits. In 2024, the Social Security Administration (SSA) set an annual earnings limit of $22,320. If your income exceeds this amount, your benefits will be reduced by $1 for every $2 earned over the limit. This reduction, however, is only temporary.
Reaching Full Retirement Age
In the year you reach your full retirement age, the earnings limit increases significantly. In 2024, the limit is $59,520. For every $3 you earn over this threshold, $1 is withheld from your benefits. This applies only to earnings before the month you reach your FRA.
After Full Retirement Age
Starting from the month you attain FRA, there are no earnings limits, so you can earn as much as you want without affecting your Social Security benefits.
Additionally, the Social Security Administration says that it will recalculate your benefit amount for the months that were reduced or withheld due to excess earnings. And, if your current earnings are among the highest 35 years of work income, you may also see a boost in monthly benefits.
Social Security Benefit Recalculation
When you continue to work after beginning to receive Social Security benefits, your earnings can lead to a recalculation of those benefits. Social Security Administration (SSA) recalculates benefits annually to account for any additional income that might increase your overall earnings record. The recalculation process considers your highest 35 years of earnings, including new earnings from post-retirement work.
The recalculated benefits could result in an increase if your recent earnings are higher than one of the years previously counted in your benefit calculation. This adjustment ensures that your benefits reflect your highest earning years, potentially boosting your monthly payments.
However, it’s important to note that working and earning above a certain threshold before reaching full retirement age may temporarily reduce your benefits due to the retirement earnings test.
Once you reach full retirement age, the SSA no longer withholds benefits due to earnings, and any months when benefits were withheld due to excess earnings will be credited back, possibly leading to higher benefits. Thus, continuing to work after retirement can have a positive impact on your Social Security benefits through these recalculations.
Pension Plans and Working Hours
If you receive a pension, the rules about working hours can vary significantly based on the plan’s terms. Some pension plans may have restrictions on post-retirement employment, especially if you return to work for the same employer.
Any reductions are often calculated based on how much you earn over the set limit. Additionally, specific pension plans might suspend payments entirely if you return to work in the same industry or with the same employer from which you retired.
Financial Benefits of Working After Retirement
Working after retirement can offer numerous financial advantages, making it an attractive option for many retirees. While the idea of continuing to work may seem counterintuitive, the benefits are appealing.
- Supplementing retirement income: This extra money can help cover everyday expenses, medical bills, or even fund leisure activities, enhancing your quality of life without depleting your retirement savings. Common income sources can include retirement account withdrawals, rental income and investment dividends.
- Delaying Social Security benefits: Continuing to work allows you to delay taking Social Security benefits. Each year you delay past your full retirement age increases your benefits, providing a larger monthly payout when you decide to claim them.
- Maintaining employer benefits: Remaining in the workforce can offer access to valuable employer benefits, such as health insurance. These benefits can reduce out-of-pocket healthcare costs, which can be a significant financial burden in retirement.
- Reducing withdrawal rates: Working part-time can reduce the need to withdraw funds from your retirement accounts. Lower withdrawal rates mean your investments can continue to grow, potentially providing more financial security in the long run.
- Boosting savings: Earning a salary post-retirement allows for continued contributions to retirement accounts. Adding to savings, even in smaller amounts, can increase your financial cushion and provide more resources for future needs.
Bottom Line
While working can temporarily reduce benefits for those below full retirement age, recalculations and eventual restoration of withheld benefits can also lead to a positive adjustment. Additionally, the financial perks of earning post-retirement income–such as supplementing retirement funds, delaying Social Security claims, maintaining employer benefits and boosting savings–can significantly enhance overall financial stability and quality of life in retirement.
- A financial advisor can help you analyze retirement investments, and create a plan to grow and protect your nest egg. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to figure out how much you could get from Social Security, SmartAsset’s calculator can help you estimate your benefits.
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