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Working After Retirement: Beware the Cost

If you are taking Social Security, you may lose some of it in the short run but earn more later

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If you’re thinking of working after you retire from your longtime job, be prepared to possibly lose some of your Social Security benefits in the short run.

These days, more people 60 and older are working. In fact, 6 in 10 Americans ages 60 to 64 are working at least part time in 2022, up from barely half of that age group 20 years ago, according to the federal Bureau of Labor Statistics. Among those 65 to 69, 38 percent are working, compared to 26 percent in 2002.

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But if you have already claimed Social Security and return to work, some of your benefits may be withheld. If you file for retirement benefits anytime between the minimum claiming age of 62 and your full retirement age (FRA) — between 66 and 4 months and 67, depending on your year of birth — you will be subject to Social Security's earnings test.

As long as you earn no more than $19,560 in 2022 (the amount changes each year), you won’t lose any of your Social Security benefits for that year. But if you earn more than that, Social Security will deduct $1 for every $2 you earn above that threshold.

For example, say you claimed Social Security at age 62 in January 2022 but continued working in a job that will pay you $24,000 for the year, $4,440 above the earnings threshold. Social Security will withhold $2,220 from your benefits — that is, $1 for every $2 you earned above the limit.

In the year you will hit full retirement age, the threshold increases to $51,960. If you earn more than that, you lose $1 for every $3 above the limit until the month you actually reach FRA. For example, say you went back to work in January 2022 and will reach your full retirement age in November. If you earned $54,000 in those 10 months, Social Security would withhold $680 — a thid of the $2,040 by which you exceeded the limit. 

Once you reach FRA, the earnings text expires and you will collect your full Social Security benefit, no matter how much you earn. The same is true if you are past full retirement age when you return to work — there is no benefit deduction. 

Work can boost future benefits

Social Security retirement benefits are calculated on the basis of the recipient's 35 highest-earning years. Each year, the Social Security Administration reviews the records of beneficiaries who work. If the most recent year ranked among their top 35 for pay, adjusted for national wage trends, Social Security recalculates the monthly benefit.

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Just keep in mind the consequences of earning more money after you’ve retired. “People aren’t as aware as they should be of the financial consequences of going back to work,” says Richard Johnson, director of the Program on Retirement Policy at the Urban Institute, a nonpartisan research firm.

“While you’re working until 66 or 67, you won’t get as much,” Johnson says. “You lose some of your Social Security in the short term but increase your benefit for the rest of your life” once you pass the month in which you reach your full retirement age. That's because when you pass FRA, along with ending the earnings test, Social Security increases your monthly benefit permanently to account for the months in which benefits were withheld.

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Working part time will not necessarily push you above the earnings threshold, yet can still add to your retirement income. A $15-an-hour job for 20 hours a week can mean $15,000 in annual extra income, says Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and Transamerica Center for Retirement Studies in Los Angeles.

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