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Should You Work and Collect Social Security?

A paycheck may reduce your benefits for a time, but there's a payback

spinner image inbox and outbox that both have stacks of mail topped with social security cards
Nick Ferrari

People commonly take Social Security only after they've retired, but life isn't always that neat. Financial pressures or unforeseen events — like, say, a pandemic — may lead you either to claim benefits while you're still working or to return to work after you've begun collecting.

That's when you could encounter the Social Security earnings test: a confusing policy that can temporarily reduce your monthly benefit. Here are answers to questions you're likely to have about the test's complex rules.

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Am I subject to the earnings test?

If you are at least 66 years and 2 months old, the top threshold currently in effect for Social Security's full retirement age, the answer is no. But if you are working and are below this full retirement age, the test can affect whatever Social Security benefits you receive, including spousal, survivor or disability benefits.

What's the test's impact?

The test determines how much your benefits will be cut, based on your total earnings. If you earn the exempted amount — $18,960 in 2021 — or less, there's no reduction. But if this isn't the year in which you reach your full retirement age, your benefits are reduced by half the amount that your earnings exceed that annual limit. For example, say you're earning $30,000 a year, or $11,040 over this year's earned income limit. Your annual benefits would then be reduced by half that amount, or $5,520. (Cuts are lower in the year you reach your full retirement age.)

How does Social Security carry this out?

The agency suspends monthly payments until the money withheld covers the amount the benefit has been lowered. In this example of a $5,520 reduction, let's assume your benefit is $1,000 a month. That would mean you wouldn't receive your first six monthly checks, or $6,000, says William Reichenstein, head of research at software and consulting company Social Security Solutions. Social Security would later send you the amount overwithheld, or $480.

It's possible all of your benefits for a year might be withheld — say, if you collected for two years, then got a job paying so well that the benefit reduction formula canceled out your payments. How well would the job have to pay? Double your annual Social Security benefit, then add in that year's earned income limit. So if you were due $12,000 from Social Security in 2021, the cutoff would be $42,960 — the sum of $24,000 (twice your benefits) and $18,960.

How does Social Security know how much to cut?

You're supposed to report any earnings changes to Social Security by calling 800-772-1213 or contacting your local office directly. If you earn more than the estimate that you initially provided, Social Security will withhold future benefits to make up the difference. If your earnings drop, it will boost your monthly check. “Earnings patterns are rarely routine and consistent,” says columnist Thomas Margenau, former director of the Social Security Administration's public information office, explaining why these adjustments can be a headache. “It's a nightmare to administer.”

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So is that money gone?

No, you'll get it back, assuming you live long enough.

Remember that any Social Security recipient who claims before full retirement age, employed or not, doesn't get a full benefit. Instead, it's lowered based on the number of months before full retirement age that the claim is made. But if you've had benefits withheld, once you hit full retirement age, Social Security will raise your monthly benefit as if you had delayed claiming for all the months you missed payments. If, for instance, you claimed at 62 and later lost 12 payments to the earnings test, Social Security would raise your monthly benefit to what it would have been had you retired at 63. In this example, you'd regain your money by about age 79, Margenau says, then continue collecting that higher benefit.

There's another possible bonus, says Matthew Allen, CEO of consulting firm Social Security Advisors. If your earnings in a particular year make it one of the 35 top-earning years (adjusted for inflation), it will boost your earnings history, and thus your monthly check.

Will my spouse's earnings lower my Social Security benefit?

No. Your earnings test is based solely on the amount earned by you.

This all seems like a hassle. Is working while on Social Security really worth it? 

"Work never hurts,” says retirement planning consultant Kurt Czarnowski, a Social Security Administration veteran. The paperwork can be frustrating, but any early benefits reductions are recouped given time.

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