The Social Security Administration allows seniors to work and receive Social Security benefits at the same time. But whether working will impact your benefits will depend on how old you are and how much you earn.
You're entitled to collect Social Security starting at age 62, but you won't get your full monthly benefit until you reach full retirement age, or FRA. Here's what that age looks like, depending on when you were born:
|
Year of Birth |
Full Retirement Age |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 or later |
67 |
DATA SOURCE: SOCIAL SECURITY ADMINISTRATION.
Once you reach FRA, you can earn as much money as you'd like without having it impact your benefits. But if you work and collect benefits prior to FRA, you'll be subject to Social Security's earnings test.
The earnings test dictates how much money you're entitled to earn before your benefits are affected. And the good news is that the limits under this test are increasing going into 2020. This means that seniors who haven't reached FRA will be able to earn more money without cutting their benefits.
IMAGE SOURCE: GETTY IMAGES.
2020's earnings test limits
The amount of money you can earn before losing benefits will depend on how old you are. If you're collecting Social Security but haven't yet reached FRA and won't be reaching FRA in 2020, then you can earn up to $18,240 next year without having benefits withheld. This represents a $600 increase from 2019's earnings test limit of $17,640.
Once your earnings exceed $18,240, you'll have $1 in benefits withheld for every $2 you make. That money isn't lost forever -- rather, whatever amount you have withheld will be added back into your benefits once you reach FRA. If you earn $20,240 in 2020 and you're 62 years old, you'll forgo $1,000 in benefits for being $2,000 above the earnings test limit -- but you'll get it back later on.
The rules work differently if you'll be reaching FRA in 2020. In that case, the earnings test limit is $48,600 next year, which is an increase of $1,680 from 2019's $46,920 limit. Once your earnings exceed $48,600 in 2020, you'll have $1 in benefits withheld for every $3 you make.
Is it worth it to file early if you're still working?
As mentioned above, any benefits you have withheld due to the earnings test will be reinstated once you reach FRA, so you're not losing that money permanently. But if you file for Social Security before reaching FRA, you will face a permanent reduction in those benefits (unless you undo that decision by withdrawing your benefits application within a year of filing and repay all of the money you collected in Social Security).
Specifically, your benefits will be reduced by 6.67% a year for the first three years you file ahead of FRA, and then by 5% a year for each year after that. This means that if you're looking at an FRA of 67 but you file at 62, your benefits will be reduced by 30%. If your FRA is 67 and you file at 64, you'll lose 20% of your benefits.
This specific reduction has nothing to do with the earnings test. It's a penalty for filing early and applies regardless of whether you work or not. Therefore, if you're able to continue working in the years leading up to FRA, it could pay to hold off on benefits until then.
If you file early while holding down a job that pays more than what the earnings test allows for, you'll not only face a lifelong reduction in benefits but also be subject to the above-mentioned withholding.
