Social Security – What Happens if You Claim Your Benefits and Continue to Work?

There are two answers to this question. The first answer addresses the general impact on your monthly Social Security benefit. The second answer addresses the situation if you were to claim your benefit before your Full Retirement Age. Let’s start with the general impact on your monthly benefit if you claim your benefits and continue to work.

Most people think once they claim their Social Security, they will have to live with that benefit amount for life. That is not the case. There are actually a few ways you can grow the amount of the benefit you receive even after claiming it. One of those ways you can claim your benefits and continue to work.

An Example of How to Claim your Benefits and Continue to Work.

To illustrate how this would work, let’s use an example. Let's assume that somebody claimed their benefit at their Full Retirement Age of 66, and receive $2,500 per month. You could assume they would receive a $2,500 benefit amount per month for the rest of their life. But if they continue to work, that may not be the case.

In order to determine your monthly benefit amount, Social Security uses a formula that includes your 35 highest wage-earning years. If one year you had higher earnings than another, Social Security will delete that lower earning year from their formula. They will then add the higher earning year, and that should slightly increase your monthly benefit amount. They will do this recalculation even if you claim your benefits and continue to work.

Still Working in Your 60s

Someone working in their 60s are probably making a lot more money than they did in their 30s. Those higher earnings in their 60s could eliminate one of the lower earning years they had in their 30s. If so, their Social Security benefit would increase. In the example above, we assumed a person claimed a benefit of $2,500 at their Full Retirement Age of 66 and continued to work.

It will not be a substantial increase in your benefit, because you are only replacing one out of the 35 wage-earning years in their formula, but you should see a slight benefit increase. They still do this even if this person has already claimed their benefits and continue to work.

In fact, even if this person were to continue to work into 90s, Social Security would recalculate their benefit every year. If they made enough money to knock out one of their previous 35 wage-earning years, the next year they would increase their benefit.

What if I do not have 35 wage-earning years?

The impact on the size of your benefit could be greater if you did not have 35 wage-earning years. For a number of various reasons, some people stop working for an extended period of time during their careers. That being the case, they may not have a work history that includes 35 wage-earning years. Let’s assume that when they claim their benefits, they only worked for 30 years. Well, the formula Social Security uses to determine the size of the benefit you will receive, still includes 35 wage-earning years.

If you only worked for 30 years when you claim your benefits, in order to determine the amount of your benefit, Social Security will also include 5 years of $0 (zeros).

How do I replace those $0 with wage-earning years?

For every year that this person continues to work after claiming their benefits, they would replace one of those $0 wage-earning years. That should increase their benefit by a greater amount than if they already had 35 years of earnings from their job.

I don’t know if you want to work into your 70s, 80s or 90s, but if you do, you could increase your Social Security benefit even after you claimed it.

Claim your benefits and continue to work before Full Retirement Age?

In this case, you would be subjected to the “Earnings Test”. If you earned too much money, you would have to return some, most, or even all the benefits you received that year.

Earning Limits

In 2023 the earnings limit for someone who claimed their benefits before their Full Retirement Age – but continued to work – is $21,240.

For every $2 of earned income in excess of that amount, you will have to give back $1 of received Social Security benefits. The earnings test only applies to earned income or income you receive from a job, it does not apply to things like investment income or rental income. Someone born in 1958 has a Full Retirement Age of 66 years and 8 months.

According to their Social Security benefit statement, if they wait and claim their benefit at their Full Retirement Age of 66 years and 8 months, they will receive a monthly benefit of $2,000.

But this person decides to claim their benefit as early as possible at age 62. Because they claimed their benefit at age 62, their monthly benefit is reduced to only $1,433. While they are collecting that $1,433, they continue to work and have annual earned income from their job of $47,034.

The amount of the earned income exceeds the earnings limit of $21,240 by $25,794 ($47,034 – $21,240). In order to determine the amount of their received benefits they will have to give back, you either divide the $25,794 of excess earned income by 2 or multiply the $25,794 by 50% and the result is $12,897.

Giving Back Benefits

Because of the earnings test, they will have to give back $12,897 of their Social Security benefits. This also happens to be nine months worth of benefit payments ($12,897 divided by $1,433 = 9).

This person will not have to write a check to Social Security at the end of the year for $12,897. At the beginning of the year, Social Security will ask to estimate the amount of money they will receive from their job that year. Based on that estimate, Social Security will determine the number of monthly benefit payments that person will have to give back, in this case they will estimate they will have to give back nine full months of benefit payments.

That being the case, Social Security will not send this person a monthly benefit check for the first nine months of the year. They will receive their first benefit check in October. If at the end of the year their estimate is off, they will true up the account.

Do Not Permanently Lose Those Benefits

It is very important to note that you do not permanently lose those benefits that you had to pay back. When you reach your Full Retirement Age, Social Security will recalculate the amount of your monthly benefit. In the example I just used, that person had a Full Retirement Age of 66 years and eight months.

If that person claimed their reduced benefit at age 62 and continued to work, making roughly the same amount of money over the next four years and eight months, they would have returned 36 months of benefit payments – three years worth. Remember, we calculated that every year they would have to give back a full nine months of benefit payments.

They would have given back a full 9 months of benefit payments. This would be for the years they were 62, 63, 64 & 65 years old.

Earnings Limit for year they turn age 66

They would not have had to give back any benefits during the year in which they were age 66. That is because the year you reach your Full Retirement age, the earnings limit is increased to $56,520. And for every $3 of earned income in excess of that amount, you have to give back $1. In our example, they only had $47,034 of earned income. This is less than the earnings limit of $56,520. So in the year they reach their Full Retirement Age, they would not have to give back any received benefits.

Full Retirement Age & Older – No Earnings Limit

Once you reach your Full Retirement Age, the earnings limit no longer applies or goes away. In other words, you can collect benefits, continue to work, and make as much money as possible. You will never have to give back any to receive Social Security benefits.

So from age 62 to age 66 years & 8 months they gave back a full 3 years of benefit payments. In order to recalculate their benefit, Social Security will take that 3 years and add it back to their original claiming age. Age 62 plus 3 equals age 65.

Increase Monthly Benefit to $1,778

Social Security will recalculate their benefit as if they claimed it at age 65, which would increase their monthly benefit to $1,778 per month. Remember, when they originally claimed their benefit at age 62, they only received $1,433 per month. Once they reached their Full Retirement Age of 66 years & 8 months, Social Security recalculated their benefit as if they claimed it at age 65 and increased it to $1,778, which they will receive for the rest of their life.

Those are two things that could happen when you collect benefits and continue to work. The first thing is definitely good. In that, Social Security will increase your benefit if your earned income is large enough to knock off one of your previous 35 year of earnings, even if you have already claimed your benefits. The second, the earnings test, at first seems like a bad thing if you make too much money and have to pay back some or all of your received benefits. But come to find out, you don’t lose those returned benefits forever. You receive them back over time when Social Security recalculates your benefit once you reach your Full Retirement Age and pays you a larger monthly benefit for the rest of your life.