The Surprising Way Taking a Job in Retirement Could Cost You Social Security Benefits
Key Points
Early Social Security claimants can lose money to the earnings test if they're still working.
The earnings test withholds money from your checks if your income exceeds certain limits.
When you reach full retirement age, any money withheld due to the earnings test comes back as a benefit boost.
- The $23,760 Social Security bonus most retirees completely overlook ›
Working and claiming Social Security at the same time seems like the perfect income strategy, especially if you're worried your retirement savings might not last long enough. In theory, your job and benefits will cover most or all of your monthly expenses, allowing you to leave your savings invested.
In practice, it doesn't always work out that way. A little-known Social Security rule called the earnings test can actually cost workers their checks and leave them in a financial bind if they're not prepared.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Image source: Getty Images.
How the Social Security earnings test could cost you your benefits
There's no rule saying you can't claim Social Security while you're working, but early claimants -- those who apply for benefits under their full retirement age (FRA) -- face the earnings test if they do. This withholds money from your paychecks if your job income exceeds certain limits.
In 2026, you lose $1 from your annual benefits for every $2 you earn over $24,480 if you're under your FRA (which is 67 for those born in 1960 or later) all year. Those who reach their FRA in 2026 can earn up to $65,160 before any withholding is taken from their checks. After this, they lose $1 for every $3 they earn if they haven't reached their birth month yet.
Whether this is a problem depends on how much you earn from your job and what other income sources you can rely upon. If you're under the age limit, the earnings test may not affect you. The same goes for whether you can live off your job income alone or if you're comfortable tapping into personal savings.
If you counted on your Social Security checks to cover a significant portion of your expenses, you may need to rethink your plans for the next few years. Once you hit your FRA, you no longer have to worry about the earnings test, and you'll actually get a benefit boost to make up for what the Social Security Administration withheld before.
How to plan for the earnings test
You may need to adjust your budget if you're worried the earnings test could pose a problem. Try to estimate how much you'll lose from future checks, and figure out how you'll make up for this. That could be by reducing spending or tapping into your retirement savings to make up the difference.
Keep in mind that the earnings test limits change annually. Remember to check the 2027 limits before the start of the year so you know what to expect.
The $23,760 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
Recommended Articles
