Around 64% of Americans have not saved enough for retirement, and about half of those individuals may have nothing set aside when they reach retirement age.
With such a large percentage of Americans struggling to save for retirement, it’s clear that many of these individuals will need to work far past the full retirement age. And quite possibly in some capacity for the rest of their lives.
This harsh reality begs the question: Can I work and collect social security?
Like most things, the answer to that question is complex and varies depending on your situation. However, by the end of this article, you will be able to answer the question for yourself and your loved ones.
Can I work and collect social security? Let’s find out.
What Is Social Security?
Signed into law in 1935 as part of the New Deal, the original purpose of Social Security was as a retirement plan for workers aged 65 or older. The program allowed individuals to have continuing income after retirement, and for many, to have a retirement.
Although Social Security started as purely a retirement plan for workers, provisions were added over the next 40 years to include survivor benefits, disability insurance, Medicare, and supplemental security income (SSI). These additions helped provide income for families of deceased workers, those with disabilities, and medical insurance for beneficiaries.
Today, roughly 63 million individuals in the United States receive Social Security benefits or approximately 1 in 5 Americans. Of those individuals, 1 in 3 are disabled, dependents, or survivors.
How Does Social Security Work?
Social Security is one of the more confusing areas of personal finance for people, and it can be challenging to determine how to handle the decision of claiming your benefits.
There are also concerns of solvency and the Social Security shortfall, or the fact that more benefits are get paid out than taxes taken in. However, we’ll save that discussion for another day.
It is essential to know is how Social Security works, which will help us answer whether you can work while collecting benefits.
At What Age Can You Take Social Security?
For most, Social Security benefits will come in the form of income for retirement. For those not on disability, you can begin drawing Social Security benefits at age 62 at the earliest (age 60 if a widow or widower). However, if you decide to start receiving benefits early, they will be reduced by a small percentage for each month before your full retirement age you take them.
Full retirement age, or the age at which you’ll receive full benefits for your situation, is age 66 and 2 months for those born in 1955, with a gradual rise to age 67 for those born in 1960 or later.
There is also an incentive for delaying your benefits until after your full retirement age. You can delay your benefits up until age 70, after which there is no further increase in benefits and thus no reason to delay receiving Social Security.
For example, those who reach full retirement age at 66 years and two months but delay until age 70 would receive 132% of what they would have received if they had begun drawing at full retirement age.
How are Benefits Calculated?
Social Security calculates benefits using two factors: 1) The amount you earned during your working career, and 2) The age you begin taking benefits.
In calculating your benefits, SSA uses the highest 35 earning years of your working career. This calculation yields your Average Indexed Monthly Earnings (AIME), which they use to calculate your benefits. However, take note that years in which you earned no income are also included in that count, which could severely impact your benefits if there were many years where you were not working.
The AIME is then divided into three “bend” points plugged into a formula that yields your monthly benefits at full retirement age or your Primary Insurance Amount (PIA).
Your PIA gets increased or decreased based on what age you start benefits. Cost of living adjustments impact benefits as well.
Calculating your AIME and PIA is very confusing and complex, so those hoping to get an estimate of their monthly Social Security benefits can do so using online calculators offered at the Social Security Administration (SSA) website.
Can I Work and Collect Social Security?
Now that you know when you can begin taking Social Security, how your benefits get calculated, and possibly an estimate of how much you can expect to receive, we can start diving into the question posed at the beginning of this article.
Can I work and collect Social Security?
The simple answer is yes, but the complex answer is yes with a caveat. While it is possible to work and collect Social Security, the amount you can earn and the impact on your benefits depends on several factors.
How Much Can You Earn and Still Receive Benefits?
The moment you begin receiving Social Security retirement benefits, the Social Security Administration considers you retired. Whether or not earnings impact your Social Security benefits depends on your age.
If you have reached your full retirement age (between 66 + 2 months and 67 depending on the year you were born), then whatever you earn by working will not reduce your benefits. In other words, once you’ve reached full retirement age, you can work as much as you want without those earnings impacting your Social Security.
However, if you are under full retirement age, there is a cap on your earnings without facing a reduction in benefits. For 2021, the annual limit for those receiving Social Security retirement benefits is $18,960.
Thus, if you are under full retirement age and receiving Social Security, you can work and make up to $18,960 annually in addition to your benefits without losing any of those benefits.
However, for every $2 you earn above the annual limit, $1 will be deducted from your benefit payments.
For example, say you earned $19,960 this year, $1,000 above the annual limit. In this case, you would lose $500 in Social Security benefits for the year due to the additional earned income. Of course, you are gaining $500 in income in this scenario, but you’d have to decide for yourself if working to make that money is worth the loss of benefits.
To complicate things even more, there are special rules for those who choose to work while receiving benefits in the year they will reach full retirement. For those individuals, the earnings limit for 2021 is $50,520, with $1 in benefits being deducted for every $3 earned over this limit.
In addition, in the above scenario, the SSA only counts your earnings up to the month before you reach your full retirement age instead of your earnings for the entire year.
What Counts as Earned Income?
As you can see, the annual limit for the amount you can earn while still receiving full Social Security benefits is relatively low, and thus you may be wondering what the SSA counts as earned income.
Of course, income from working a job counts, along with bonuses, vacation pay, and commissions. However, if you are self-employed, the SSA only counts your net profit as earned income.
On the other hand, the SSA does not count pensions, investment income, interest, veterans or government retirements benefits, or annuities as earned income.
As you can see, the SSA only counts income earned from working a job or from self-employment when determining whether your benefits get reduced.
Can I work and collect Social Security? Yes, but be careful not to exceed the annual limit that applies to your situation, or you will lose out on some of your benefits.
Should You Work and Collect Social Security?
Now that you know that you can work and still collect Social Security, the question becomes, should you?
As with most things, it depends.
Remember that the annual earned income limits only affect your Social Security benefits under full retirement age. If you are over the full retirement age, you may work as much as you please without that income affecting your benefits.
If you are under full retirement age and receiving Social Security retirement benefits, consider the annual income limits and whether or not you anticipate making more than the limit.
If you are slightly over the limit, the impact on your benefits will be minimal. Still, if you are significantly over the limit, the extra income you’ll bring in likely won’t outweigh the reduction in benefits.
Suppose you want to keep working and earn significantly more than the annual earnings limits listed above. In that case, you should consider delaying taking your retirement benefits until you’ve reached full retirement age and the point where your earnings won’t impact your benefits.
You may still be unsure whether it makes sense for you to work and collect Social Security. If so, consider hiring a retirement advisor, a financial advisor specializing in helping people nearing retirement. You'll find many retirement advisors have earned the Retirement Income Certified Professional designation, so they can help you determine the best time to claim Social Security based on your circumstances.
You can also visit the Social Security Administration site for a list of Social Security resources and help decide what is best for your situation.
Social Security is a complex but critical component of the long-term financial plan of every American.
While not meant as a complete retirement plan, Social Security remains a key piece of retirement and an earned benefit for those who have worked throughout their life. Social Security becomes even more critical for those with little retirement savings but may still not be enough to get by without additional earned income comfortably.
Luckily, you can work while collecting Social Security benefits up to a specific annual limit, after which SSA reduces your benefits based on how far over the cap you go. So if you’ve reached full retirement age, there is no impact to Social Security from additional earned income.
Can I work and collect Social Security?
Yes, you can, but only you can decide if you should.
Brian Thorp is the founder and CEO of Wealthtender, a leading personal finance website helping thousands of people each month find the best financial advisors, coaches, and educational resources to enjoy life with less money stress.