Two Surprising Benefits and One Big Downside of Working While on Social Security

If you’re wondering if you can work while collecting Social Security, the answer is yes. Many retirees do this, and it’s absolutely allowed.

But while working while on Social Security has some benefits, it could also have a big drawback you may not know about. It’s important to understand the pros and cons so you’re able to make an informed decision as to whether it pays to work while on Social Security or not.

The upside of working while on Social Security

There are two main benefits to working while collecting Social Security. The first is that you may be able to boost your retirement income nicely. 

The average Social Security benefit today is about $2,081 per month, which amounts to roughly $25,000 per year. Clearly, that’s not a lot of money. 

With very low expenses, you may be able to make a $25,000 annual income work. But if you still owe money on your home or have expensive healthcare needs, you may require supplemental income. Earning a paycheck on the side while collecting Social Security could make it easier to make ends meet. 

The second advantage of working while on Social Security is that it could lead to larger monthly benefits if you’re able to replace years of no or low earnings with the wages you’re earning now.

To calculate your monthly benefits, the Social Security Administration (SSA) takes your 35 highest paid years of earnings into account. If you don’t have a complete 35-year work history, you’ll have a $0 factored in for each year you do not have an income.

Now, let’s say you’re on Social Security and work part-time making $20,000 a year. That $20,000 income could replace a year of $0 income in your benefits formula. 

Once you start working while collecting benefits, the SSA will recalculate your monthly payments based on your newly earned wages so that those benefits increase. 

The downside of working while on Social Security

There’s also a potential downside of working while on Social Security. If you haven’t reached full retirement age (FRA), you’ll be subject to an earnings test. And making too much money could lead to having benefits withheld.

The earnings test does not apply to you once you’ve reached FRA. So this may only be a temporary setback. And if you’re able to keep your earnings below the limits of the earnings test, you won’t have any problems with withheld benefits.

The limits of the earnings test change every year. Currently, you’ll have $1 in Social Security withheld per $2 above $24,480 if you won’t reach FRA by the end of the year. If you will reach FRA by the end of the year, you’ll have $1 in Social Security withheld per $3 above $65,160.

If you do have benefits withheld for earning too much, the SSA will recalculate your benefits once you reach FRA. It will then gradually return your withheld benefits to you in the form of larger monthly payments. But it’s important to recognize that in the near term, your Social Security checks could shrink.

However, if that’s a concern, you can always try to keep your income below the earnings test limit. Just pay attention, because those numbers are most likely going to change in January. 

Usually, though, the earnings test limit increases from year to year. So if anything, that change should give you more opportunities to earn money before it negatively impacts your benefits.