Can You Claim Social Security and Still Work? - Part 1
You can claim your Social Security and still work. But your age when you claim, and how much you earn, will determine whether your benefit will be decreased.
If you claim at your Full Retirement Age or older, and continue to work, you will not have to worry about giving back any of your received Social Security benefits. This is because you made too much money from your job. But if you claim your benefits younger than your Full Retirement Age while working, you will be subjected to the “Earnings Test”. And depending on how much money you earn, you may have to give some back. Maybe even most or all of your received benefits.
In 2023, the earnings limit for someone who claimed 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 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. It also only applies to your earned income. If you are married, your spouse’s earned income would not be included in the Earnings Test, only your earned income.
Your Social Security Full Retirement Age is determined by the year you were born. It varies between age 66 to age 67. For this example, you were born in 1962, which would give you a Full Retirement Age of 67.
An Example
According to your Social Security Benefit statement, if you wait to claim until age 67, you will receive a monthly benefit of $2,500. But if you decide to claim your benefit at age 62, your benefit will be reduced to $1,750 per month.
While you are collecting your monthly benefit, you continue to work. Your annual earned income from your job of $52,740.
The amount of your earned income exceeds the Earnings Test limit of $21,240 by $31,500 ($52,740 – $21,240).
To determine the amount you will have to give back, either divide the $31,500 excess earned income by 2, or multiply it by 50%. The result is $15,750.
Because of the earnings test, you will have to give back $15,750 of your Social Security benefits. This is nine months worth of benefit payments ($15,750 divided by $1,750 = 9).
You will not have to write a check to Social Security at the end of the year for $15,750. At the beginning of the year, Social Security asks you to estimate the amount you will receive from working that year. Based on that estimate, Social Security will determine the number of monthly benefit payments you will have to give back. In this case, they will estimate that you will have to give back nine full months of benefit payments. Because of this, Social Security won’t send you your first benefit check for the first nine months of the year. So you will receive your first benefit check in October.
You Do Not Permanently Lose Those Benefits!
It is important to note that you do not permanently lose those benefits that you had to give back. When you reach your Full Retirement Age, or retire from your job, Social Security will recalculate the amount of your benefit. Later I will show you how this works.
What if I claimed at Age 62?
If you claimed your benefit at 62 and continued to work, making roughly the same amount of money over the next five years, you would have to return 36 months of benefit payments. That’s over three years worth! Remember, you had to give back nine months of benefit payments. 9 x 4 = 36 months or 3 years.
You would have given back a full 9 months of benefit payments every year between age 62 – 66.
You would not have to give back any benefits during the calendar year in which you would turn age 67. That is because the calendar year you reach your Full Retirement Age, the earnings limit is increased. It goes to $56,520, and for every $3 of earned income in excess of that amount, you have to give back $1.
If your earnings stayed relatively the same for the year, that is less than the $56,520 limit for the year you turn 67. During that year, you would not have to give back any of your received Social Security benefits.
No Earnings Limit if you’re of Full Retirement Age or Older
Once you reach your Full Retirement Age, the Earnings Test no longer applies. You can collect your benefits, continue to work, and make as much money from your job as possible. You will never have to give back any of your received Social Security benefits.
Remember, you don’t permanently lose the benefits you had to give back because you made too much earned income.
From 62 to your Full Retirement Age of 67, you had to give back a full three years of received benefit payments. In order to recalculate your benefit, Social Security will take those three years and add them back to your original claiming age. Age 62 plus three years equals age 65.
Social Security will recalculate your benefit as if you originally claimed it at age 65. This would increase your monthly benefit to $2,166 per month. When you originally claimed your benefit at age 62, you only received $1,750 per month. Once you reached your Full Retirement Age of 67, Social Security recalculated your benefit as if you originally claimed it at age 65, and increased it to $2,166. You will receive this amount for the rest of your life.
At first glance, it appears that the Earnings Test is 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 will 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.
This has been Part 1 of Can You Claim Social Security and Still Work? Go see Part 2 now!
