Social Security is a critical source of income for many retirees, with four in 10 baby boomers saying their benefits will be their primary source of income, according to a 2023 report from the Transamerica Center for Retirement Studies.
But older people are also working longer than ever. The report also found that about half of baby boomers expect to continue working past age 70 or never retire.
It is possible to continue working even after paying into Social Security, but this could affect the amount of your benefits. Depending on your income, your monthly payments could be reduced or even withheld entirely, but good news is coming in 2024.
How work will affect your benefit amount
If you earn income from employment while receiving Social Security, your salary will be subject to the retirement income test. This is essentially an income cap that will determine how much, if any, of your benefits will be withheld.
There are two different income limits depending on whether or not you have reached full retirement age (FRA). Your FRA will depend on your year of birth, but it is 67 for anyone born in 1960 or later.
These limits change from year to year, and the good news is that they will both increase in 2024, meaning you can earn more before your benefits are reduced.
|Income ceiling in 2024||Income ceiling in 2023|
|If you won’t achieve your FRA this year||$22,320||$21,240|
|If you will achieve your FRA this year||$59,520||$56,520|
If you don’t reach your FRA in 2024, your benefits will be reduced by $1 for every $2 you earn above the annual income limit of $22,320. If you reach your FRA next year, you’ll receive a $1 benefit reduction for every $3 you earn above the $59,520 annual limit.
So, for example, let’s say you are 65 years old with an FRA of 67 and you earn $40,000 per year from your job. You will not reach your FRA in 2024 and your income is $17,680 above the income limit. This means your benefits would be reduced by $8,840 per year, or about $737 per month.
These reductions are only temporary
Fortunately, if your benefits are reduced because of your income, it’s only temporary. Once you reach your FRA, the Social Security Administration will recalculate your benefit to account for the money withheld. From then on, you will receive larger checks each month.
Additionally, once you exceed your FRA, your income will no longer be subject to the income limits. So, whatever your income, your benefits will not be reduced.
However, if you still have several years until your FRA, these income limits can significantly limit the amount you receive from Social Security. For those who rely on both their benefits and income from a job to make ends meet, it can be even more difficult to afford to retire.
So the best thing you can do is simply understand how your income will affect your benefits. You may have no control over income limits or how much your payments will be reduced, but when you know what to expect, it can be easier to prepare.
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