What the $24,480 Social Security Earnings Limit Means If You Retire This Year

One of the hardest decisions you might make in your lifetime is pulling the plug on your career. It can be as especially difficult choice if you love what you do and generally like the idea of having a job to go to.

The good news is that you may be able to continue working in some capacity even if you retire. Your employer may agree to let you work a day or two a week or hire you as a consultant. Or, you might find a different part-time job or decide to join the gig economy.

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If you're retiring this year with plans to claim Social Security, you should know how earning an income might affect your benefits. Let's review this year's rules and how the program's earnings test works.

How Social Security's earnings test works

While you're allowed to earn money from a job while claiming Social Security, there's a limit as to how much you can make before you risk having some benefits withheld.

Social Security's earnings-test limit changes annually. This year, it's $24,480.

This means that if you earn any amount up to or below that sum, it won't have a negative impact on your monthly benefits. But if your wages exceed $24,480, you'll have $1 in Social Security withheld per $2 of earnings.

That said, the earnings-test limit that applies to you this year may be higher. If you'll be reaching full retirement age by Dec. 31, you can earn up to $65,160 without having benefits withheld. From there, you'll have $1 in Social Security withheld per $3 of earnings.

Now that you know the numbers, let's go over a few important earnings test rules.

• Withheld benefits are not lost forever. Once you reach full retirement age, the Social Security Administration will recalculate your monthly benefits and pay your withheld benefits back over time in the form of larger monthly checks.
• The earnings test does not apply to retirees who have reached full retirement age. If you claim Social Security at full retirement age or later, you can earn any amount of money without having benefits withheld.
• Only job-related income counts toward the earnings-test limits. If you take withdrawals from an IRA or cash out dividends in a brokerage account to supplement your Social Security checks, that money won't be counted toward the earnings test if you're under full retirement age.

You may want to reconsider an early claim if you plan to earn a lot

It's not a given that you'll be ready to stop working once you sign up for Social Security. Not only might you want or need the extra money, but you may find that without a job, you just don't have enough to do with your time during the week.

That said, if you earn a lot of money by working, you could reach the point where you have enough Social Security withheld that your monthly checks are whittled down to $0. So if you expect to earn a decent wage, you may want to hold off on claiming Social Security early.

When you file for benefits before reaching full retirement age, they're generally reduced on a permanent basis. But there's no sense in taking benefits early and slashing them in the process only to then have most or all of that money withheld due to earning too much.

As an example, let's say you're retiring this year at 62 and planning to claim Social Security. That means you're looking at a 30% reduction compared to waiting until full retirement age.

If you plan to keep working part-time and expect to earn $4,000 a month, that may be enough to cover your costs without needing Social Security. So in that case, it could pay to hold off on taking benefits in the first place.

Even if you're working while collecting Social Security this year, the program's $24,480 earnings-test limit may not apply to you. The more you understand the earnings test, the easier it may be to know what options you have.

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