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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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En español | 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, more than half — 54.7 percent — of those ages 60 to 64 were working at least part time in 2017, according to the Bureau of Labor Statistics. Among those 65 to 69, almost a third — 31.2 percent — were working.

But if you have already claimed Social Security and return to work, some of your benefits may be withheld. If you claim Social Security anytime between ages 62 and 66 to 67, and you return to work, you will be subject to the Social Security Administration’s Retirement Earnings Test.

As long as you earn no more than $17,040 in 2018 (the amount changes each year), you won’t lose any of your Social Security benefits for that year. But if you earn more than $17,040, 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 2018, with a monthly payment of $600, or $7,200 a year. And your job will pay you $22,000 during 2018, $4,960 above the $17,040 threshold. Social Security will withhold $2,480 — that is, $1 for every $2 you earned above the limit.

When you reach your full retirement age, the threshold increases to $45,360. If you earned more than that, you would lose $1 for every $3 you earn until the month you actually reach full retirement age. (For those born between 1943 and 1954, it’s 66. It increases by two months for each year thereafter until 67.) Once you reach your full retirement age, you may earn as much as you want and still collect your full Social Security benefits.

For example, say you reach your full retirement age in November 2018 and went back to work in January 2018. If you earned $46,380 in those 10 months, Social Security would withhold $340, or $1 for every $3 you earned above the $45,360 limit. In this example, your earnings above the limit were $1,020.

If you go back to work when you’re past full retirement age you will not be subject to the retirement earnings test.

Each year the Social Security Administration reviews the records of Social Security recipients who work. If the most recent year they worked was one of their 35 highest-earning years, adjusted for inflation, Social Security recalculates the monthly benefit.

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,” said 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 said. “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. After your full retirement age, your monthly benefit will be increased permanently to account for the months in which benefits were withheld.  

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, said Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and Transamerica Center for Retirement Studies in Los Angeles.