How a Part-Time Job in Retirement Could Affect Your Social Security Benefit

By the time you retire, the idea of working might seem unappealing. But some seniors prefer to work part-time, whether to boost their income or simply have something to do.

If you're collecting Social Security, you should know that you're allowed to hold down a job at the same time, whether it's part-time, full-time, or freelance. But you should also know that having a job could have a positive effect on your Social Security benefits or a negative one, depending on your situation.

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Be mindful of Social Security's earnings test

The monthly Social Security benefit you get in retirement is calculated based on your personal wage history. Once you reach full retirement age, you're entitled to that benefit without a reduction.

This is an important thing to know, because you can claim Social Security once you turn 62. But for people born in 1960 or later, full retirement age doesn't arrive until 67.

Another thing you should know is that Social Security has an earnings test that applies to people who work while collecting benefits. Once you reach full retirement age, you won't be subject to it. But if you're working part-time while receiving benefits before full retirement age, the earnings test will apply.

The earnings-test limits change yearly. But if you exceed them, you risk having Social Security benefits withheld.

This year, if you won't be reaching full retirement age by Dec. 31, you can earn up to $24,480 without having any benefits withheld. Beyond that limit, you'll have $1 in Social Security withheld per $2 of earnings.

If you will be reaching full retirement age by Dec. 31, you can earn up to $65,160 without having benefits withheld. Beyond that limit, you'll have $1 in Social Security withheld per $3 of earnings.

Withheld benefits for exceeding the earnings test aren't forfeited. Once you reach full retirement age, your monthly benefit will be recalculated. And your withheld benefits will be repaid in the form of larger monthly checks.

In the near term, though, you could see your Social Security benefits reduced. So it's important to be mindful of the earnings-test limits when seeking out part-time work. If you want to supplement your income without hurting your Social Security checks, you could easily earn $2,000 a month today and still collect your monthly benefits in full.

How earned wages in retirement could affect your monthly benefits

As mentioned earlier, the Social Security benefit you're eligible for in retirement hinges on your personal income history -- specifically, your 35 highest-paid years of earnings. But if you don't have 35 years of work on record, you'll have a $0 factored into your benefits formula for each income-free year.

Now, let's say you work part-time in retirement and earn $24,000 a year. If you only have 32 years of income on record but earn $24,000 for three years, those earnings will be factored into your benefits formula once that income is reported to the Social Security Administration (SSA).

The SSA will then adjust your benefits to account for that new information. The result? Larger checks.

Part-time work in retirement could be a great way to improve your financial picture, structure your weeks, and give you something to keep busy with. It's important to recognize the impact part-time work might have on your Social Security benefits, for worse and for better.

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