Keep your regular job at your regular salary and collect benefits? It sounds good but there can be problems.
Sometimes it seems like a good idea to consider continuing to work and collect Social Security benefits. However, there are some pitfalls to the plan that need to be considered carefully, according to Yahoo! Finance in “Working and Taking Social Security at the Same Time? Watch Out for This.”
If you are under your Full Retirement Age (FRA), which depends on when you were born, the government may reduce your benefits, if your paycheck exceeds certain thresholds. This is formally known as the Social Security Earnings Test. You’ll need to work all the numbers to see if this strategy might work for you. Don’t expect it to, by the way, because that’s not what Social Security is all about.
The Social Security Earnings Test calculates how much you will lose in Social Security benefits, if you are under your FRA and if you’re earning over a certain amount every year from a paycheck. In 2019, that limit is $17,640. Note that this only applies to earned income. It does not apply to any other government benefits, investment earnings or pension income. For every $2 you earn more than $17,640 in 2019, the SSA (Social Security Administration) deducts $1 from your monthly benefit.
Let’s say you are entitled to a $1,000 benefit every month ($12,000 per year) and you also earn $2,400 from your job. You’ll lose $3,180 in benefits and you’ll get only $8,820 for the year.
The numbers are a little different, if you are reaching your FRA at some point during 2019. The 2019 earnings limit when a person has reached FRA is a lot larger at $46,920, instead of $17,640. In this case, for every $3 you earn over the limit, the SSA will reduce benefits by $1.
Here’s the sweet spot: as soon as you hit your FRA, the rules no longer apply, and you can earn as much as you can. The SSA won’t take deductions from your paychecks.
There is a Retirement Earnings Test Calculator on the Social Security website. You must enter your date of birth, estimated earnings and your estimated Social Security benefit. It will provide further information on how earnings will be calculated.
If you are counting on Social Security for most of your living expenses during retirement, consider working longer, at the very least until you reach your FRA. You can also keep working full-time and delay taking Social Security benefits, so when you do start getting that monthly benefit, it will be bigger.