For retirees who intend to collect Social Security benefits while continuing to work, awareness of how employment income impacts those benefits is essential. The intersection of working and receiving Social Security payments involves specific rules which may either reduce current benefits or contribute to increased payments in the future.
Impact on Benefits Before Full Retirement Age
The full retirement age (FRA), established at 67 for individuals born in 1960 or later, serves as a benchmark for Social Security benefit adjustments relative to work and earnings. Employment income earned prior to reaching the FRA can lead to reductions in monthly Social Security payments if certain income thresholds are surpassed.
For the year 2026, the Social Security Administration applies two distinct earnings limits for individuals who have not yet reached FRA:
- For individuals below FRA throughout the entire year: If annual earnings exceed $24,480, Social Security benefits will be decreased by one dollar for every two dollars earned above that limit.
- For those who will reach FRA during the year but have not yet attained it: If earnings surpass $65,160 in that partial year, benefits will be reduced by one dollar for every three dollars earned above this threshold. Beyond FRA, no reductions apply regardless of income level.
This means retirees who expect to draw Social Security benefits while generating significant work income beforehand should prepare for temporary dips in their benefit amounts. These rules effectively limit the simultaneous receipt of full work income and Social Security benefits before FRA.
Benefits of Temporarily Reduced Payments
Although foregoing some or all of your Social Security income due to earnings limits may seem disadvantageous in the short term, this sacrifice can lead to increased benefits later on. The Social Security Administration recalculates your eventual monthly benefits upon reaching FRA, factoring in months for which benefits were withheld due to excessive earnings. These adjustments typically yield higher benefit amounts at full retirement age to compensate for initial reductions.
This elevation in future payments means retirees who work and exceed earnings limits before FRA could secure a stronger income stream in their later years. Ultimately, this enhances financial support during retirement, reducing reliance on personal savings or other income sources.
How Working Post-Retirement Can Increase Your Benefits
Besides the mechanism of earnings limits and benefit withholding, ongoing employment while receiving Social Security can contribute to boosting monthly payments through recalculation of the benefit formula. Social Security benefits are determined by calculating a percentage of the average indexed monthly earnings from your highest 35 years of work history.
If, during retirement, your current earnings exceed one or more of your previous lower-income years used in the benefit formula, this newer income can replace earlier lower earnings within the calculation. This substitution raises your average indexed earnings and, consequently, your Social Security benefit amount.
Therefore, individuals who continue to work and earn relatively high wages, even after starting to collect Social Security, may potentially realize an increase in future monthly checks. This is particularly relevant if their recent work income surpasses historical earning levels from decades earlier.
Key Considerations for Retirees Balancing Work and Benefits
The decision to remain employed after starting Social Security benefits should be weighed carefully. While the immediate impact may involve reduced or temporarily lost payments if working before FRA, the eventual result could be increased benefits at full retirement age. Those contemplating whether to leave the workforce or continue generating paychecks should assess their current and expected earnings relative to thresholds and weigh the long-term financial implications.