Working after 65 and Social Security Benefits
For many, retiring is not a single event but a gradual transition, often involving continued work. For those 65 and older, understanding the specific Social Security rules is crucial for effective retirement planning. The impact of working depends primarily on whether you have reached your full retirement age (FRA) and how much you earn.
The Earnings Test: Before Full Retirement Age
If you are receiving Social Security benefits and have not yet reached your FRA, your earnings can temporarily reduce your monthly payments. The Social Security Administration (SSA) applies an “earnings test” with specific income limits that are updated annually. The amount deducted depends on how far you are from your FRA and how much you earn above the limit. However, any benefits withheld are not lost; the SSA will recalculate your benefit amount at your FRA to give you credit for those withheld payments, increasing your future monthly benefits.
Working at or After Full Retirement Age
If you have reached or surpassed your FRA, the annual earnings limit no longer applies. You can work and collect full Social Security benefits regardless of your income. Working during this time can also increase your benefits through Delayed Retirement Credits (DRCs) for each month you delay collecting past FRA up to age 70, and through benefit recalculations if your new earnings replace a lower-earning year in your history.
Potential Tax Implications
Working can make a portion of your Social Security benefits taxable at the federal level. This depends on your combined income (adjusted gross income + nontaxable interest + half of Social Security benefits).
- For individual filers, combined income between \$25,000 and \$34,000 may tax up to 50% of benefits; above \$34,000, up to 85%.
- For married couples filing jointly, combined income between \$32,000 and \$44,000 may tax up to 50% of benefits; above \$44,000, up to 85%.
Some states also tax Social Security benefits, with their own rules and exemptions.
Comparison of Working Before vs. After Full Retirement Age
| Feature | Working Before Full Retirement Age | Working At or After Full Retirement Age |
|---|---|---|
| Earnings Limit | An annual earnings limit applies, reducing benefits if you earn too much. | No earnings limit applies. |
| Benefit Recalculation | Withheld benefits are credited back as a higher monthly benefit at FRA. | New high-earning years can replace lower ones, potentially increasing your benefit. |
| Benefit Growth | Not eligible for Delayed Retirement Credits (DRCs). | Can earn DRCs for delaying benefits past FRA up to age 70. |
| Benefit Claiming | Claiming before FRA results in a permanently reduced benefit. | No permanent reduction for claiming at or after FRA; delaying increases benefits. |
Conclusion
Working after 65 can impact your retirement income positively, but understanding the timing relative to your FRA is key. While the earnings test may temporarily reduce benefits before FRA, withheld amounts are returned later. At or after FRA, there's no earnings limit, and continued work can lead to higher benefits through recalculations and DRCs. Be aware of potential federal and state taxes on your benefits due to increased income. The official Social Security Administration website or a financial advisor can offer tailored advice.
Important Social Security Milestones
- Age 62: Earliest age to begin receiving retirement benefits, resulting in a reduced benefit.
- Full Retirement Age (FRA): Age for full, unreduced benefits, varying by birth year (67 for those born in 1960 or later). The earnings limit stops here.
- Age 70: DRCs stop accumulating; benefits won't increase by delaying further.
- 35 Highest Earning Years: Used by SSA to calculate your benefit; working more can replace lower years and increase benefits.
