The statistics are disturbing: 80% of American homes that included aged adults couldn’t make their financial ends meet in 2024, according to the National Council on Aging (NCOA). Those who could felt they were at risk of no longer being able to do so as more years tick by.
One of the NCOA’s suggestions to try to counter this doom involves taking full advantage of Social Security benefits. This can be a challenge, however, if you must continue to work or return to work to pay your bills.
Key Takeaways
- You can keep working and collect Social Security retirement benefits, but the option is subject to several rules.
- The Social Security Administration may withhold a portion of your benefits if you work before you reach your full retirement age, depending on how much you earn.
- Your earnings no longer count against your benefits when you reach full retirement age.
How Does Social Security Work?
The Social Security taxes you pay throughout your working life accumulate and earn you credits toward your eventual retirement benefits. You’ll need at least 40 credits or the equivalent of 10 years of work to qualify if you were born in 1929 or later. The more you earn during your working years, the greater your benefits will be.
Your benefits will also increase if you postpone claiming your Social Security. You can retire and begin collecting at age 62, but this will reduce the amount of your benefits.
The Effect of Full Retirement Age
You can keep working and collect Social Security, if you need the most dimes you can get your hands on so you can pay your bills. Numerous interlocking rules apply, however, and they’ll affect how much you’ll receive in benefits if you continue working. A critical factor is when you’ll reach your full retirement age (FRA).
The Social Security Administration (SSA) will withhold a portion of your benefits that’s determined by the amount of your earnings if you haven’t yet reached your FRA. It’s $1 for every $2 you earn in excess of $24,480 in 2026. This assumes that you were younger than full retirement age all year, however.
The penalty is less severe if you celebrate your FRA birthday during the year. The SSA will withhold $1 for every $3 you earn up to $65,160 until your birthday month, then it will cease and desist. Your earnings don’t count against your benefits any longer when you reach full retirement age.
Important
Your full retirement age is based on your year of birth. It’s 67 if you were born on Jan. 2, 1960, or after that date. The SSA provides a chart identifying the FRAs of those who were born before this date.
What Counts as Earnings?
The question now becomes which dollars the SSA deems to be “earned.” Not all your sources of income will contribute to those $24,480 and $65,160 earnings limits.
Wages or a salary paid to you by an employer are classified as earnings. Vacation pay, commissions, and bonuses fall under this umbrella as well. Your net earnings are included if you’re self-employed. This is what remains after you’ve deducted your legitimate expenses of doing business. Earned income is anything you’re paid in exchange for performing a type of labor.
But here’s some good news. “If you receive a pension, unemployment benefits, take IRA withdrawals, or collect income from investments such as interest, dividends, or capital gains, none of these items count as earnings,” says Dana Anspach, certified financial planner (CFP), retirement management analyst (RMA), and founder and CEO of Sensible Money in Scottsdale, Arizona.
Note
Contributions toward retirement plans are included if they’re made from your gross pay.
The timing of income payments factors into the calculation as well. The SSA indicates that pay is included when you earn it, not when it’s paid to you. It would be included in 2025’s earnings if you worked from Dec. 24 through Dec. 31 but didn’t receive your paycheck until Jan. 1, 2026.
Social Security Gives It Back
Those dollars that the SSA withholds from your benefits because you’ve worked aren’t lost forever. The payments you receive when you reach your full retirement age will go up to compensate for the money that was retained before you reached your FRA.
“A recalculation occurs upon reaching FRA,” Anspach says. “It essentially redistributes the withheld benefits to you over your remaining life expectancy.”
The Effect on Later Years
You’ll resume paying Social Security taxes if you continue working or return to work in retirement, and the SSA checks your records annually to determine whether those tax dollars will increase your retirement benefits. If the SSA makes that determination, you’ll receive a letter and see the money in your next payment.
Then there’s the possibility that you’ll have one of the best earnings years in your working life. The SSA automatically checks the records of all benefit recipients every year, not only to keep an eye on this situation, but also because it can increase your benefits. The SSA will recalculate your payments accordingly, and you’ll see the increase in December of the following year.
You’re effectively replacing years of negligible earnings with those in which you’re receiving better pay, at least until you reach age 70. Or maybe you didn’t earn enough credits throughout your working life to be eligible to collect Social Security benefits at all. Working in your older years will still contribute to your total credits, again, until you reach age 70.
“Your benefit is based on your highest 35 years of earnings, indexed to inflation,” says Anspach. “The continued work could bump up your benefit later if your current earnings push off a lower earnings year in the calculation.”
The Bottom Line
Going back to work or continuing to work after you begin collecting Social Security retirement benefits isn’t a lose-lose situation. The extra income may be a blessing in tough times, and you’ll eventually get back the dollars the SSA withholds if you earn more than the annual limits. You might also see an increase in your benefits due to the Social Security taxes you’re still paying.
So, take a deep breath and go punch that time clock if complete retirement isn’t yet at your doorstep.
