The better question would be, “What happens if I work while collecting a Social Security benefit?” The short answer is yes, a person can work and get Social Security benefits at the same time. But, if they are younger than the full retirement age, and they earn more than the yearly earnings limit, they may be subject to a reduced benefit. Remember, Social Security has three primary purposes to those who are eligible:
- To provide a retirement benefit to those who are retired
- To provide a benefit to the disabled
- To provide a survivor’s benefit to a widow(er) and minor children
Recipients filing for benefits prior to full retirement age are subject to reduced benefits and the earnings test on income from working. For the earnings test, Social Security sets two new thresholds each year to limit the amount of income one can earn before affecting their benefits.
For every two dollars above the first threshold, one dollar is held back on all benefits coming off the worker’s record. All benefits include the worker’s, spousal benefits and children’s benefits. This fact that surprises many recipients.
The second threshold happens the year the worker turns full retirement age. This threshold is higher. For every three dollars of income earned, one dollar is held back in benefits.
So, what happens if they work while collecting a Social Security benefit? For some, it’s not uncommon to be lured back into the workforce perhaps by a former employer with a lucrative consulting offer. Whatever the reason, if you return to the workforce, the earnings test can eliminate some or all your benefits.
Note for each month they lose a benefit (i.e., you don’t receive a check) to the earnings test, they don’t get that money back directly. There is an adjustment made to the reduction factor the calendar year following their reaching full retirement age. The result is a higher benefit thereafter.
The decision to work or not to work, or determining the impact of work relative to the Social Security lifetime benefit is fortunately an easy one to make using the Social Security Timing software. This is just one of the many features used by thousands of financial planners and advisors to maximize Social Security as an asset in a client’s portfolio.
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