He Left Big Tech at 64 for an AI Startup That Paid Him in Stock. Social Security Counted It Before He Sold a Share.
Stock that cannot be sold, a private company with no buyers, and a Social Security check that stops arriving anyway. What counts as a paycheck surprises most engineers who trade salary for equity after claiming benefits.
A 64-year-old engineer leaves a large technology company for a buzzy AI startup. He has already started collecting Social Security, and the new company preserves its cash by paying him a modest salary plus restricted stock. Six months later, the first block of shares vests. The stock remains in his account, the startup is still private and he has no easy way to sell. Then Social Security begins withholding his benefits because his earnings were too high.
He is baffled. The shares may be valuable someday, but they cannot cover this month’s expenses. That is the tension buried inside startup compensation. Social Security does not wait for an acquisition, an IPO or a willing buyer. Stock can become wages long before it becomes cash.
The Shares Can Become Wages Before They Become Spendable
Restricted stock is generally treated as compensation when it vests. The amount added to wages is the stock’s fair market value on that date, minus anything the employee paid for it. The employer reports that value on his W-2 and withholds payroll taxes just as it would on salary.
Selling is a separate event. If he keeps the shares for another three years, their value at vesting was still wages in the earlier year. Any additional appreciation generally becomes a capital gain when he eventually sells. Social Security cares about that dividing line. Wages count under the retirement earnings test. Capital gains do not.
The award type can move the date. Restricted stock generally becomes taxable at vesting unless the employee made a timely Section 83(b) election. Restricted stock units typically become wages when the shares are delivered, often at vesting. Nonqualified stock options generally create wages when exercised. An 83(b) election must normally be made within 30 days of receiving eligible restricted stock and is not available for ordinary RSUs. The alphabet soup matters, but the useful question is simpler: On what date will this award appear as wages?
A Vesting Date Can Stop an Entire Year of Checks
Because he is 64 and below full retirement age (FRA), his wages remain subject to the Social Security earnings test. In 2026, someone below that age for the entire year can earn $24,480 before benefits are withheld. Above the limit, Social Security generally holds back $1 for every $2 of excess earnings.
Suppose the startup pays him $15,000 in cash and $75,000 of restricted stock vests during the year. Social Security sees $90,000 of wages, not a $15,000 salary. That leaves $65,520 above the limit and produces a potential benefit reduction of $32,760, enough to withhold an entire year of checks for many retirees. The startup may call the stock long-term upside. Social Security sees current compensation.
There is an exception for certain payments received after retirement but earned beforehand. A bonus, deferred compensation or other payment tied entirely to work completed before benefits began may qualify as a special payment and stay outside the earnings test. That does not help this engineer. He earned the stock by working for the startup after he claimed.
The Payroll-Tax Ceiling Does Not Stop the Earnings Test
Another item can create false comfort. In 2026, Social Security payroll tax applies to the first $184,500 of covered wages. Once compensation passes that ceiling, the employee no longer owes the Social Security portion of payroll tax on additional wages for the year. The earnings test keeps counting.
Social Security regulations include gross wages above the annual payroll-tax ceiling when measuring earnings. A large vesting event can therefore stop adding to his Social Security payroll tax while continuing to increase the amount used to withhold his benefits. Those withheld checks are not necessarily lost forever. At FRA, Social Security adjusts his filing reduction to credit months for which benefits were withheld, resulting in a higher monthly payment going forward. It does not send back the missing checks as a lump sum, however, so the immediate cash-flow squeeze remains.
The new wages may also increase his underlying benefit if they replace a lower year in his 35-year earnings history. Only earnings up to the annual Social Security wage ceiling can enter that calculation, even though the earnings test counts the full amount.
What to Map Before Signing
Two documents deserve as much attention as the headline salary:
- Build a calendar of every grant, vesting date and expected payroll value. Model the Social Security withholding for each year before treating the monthly benefit as spendable income.
- Confirm the award type and tax treatment in writing. Ask when each grant becomes W-2 wages, whether any shares will be withheld for taxes and whether an 83(b) election is both available and sensible.
The offer may still be worth taking. Stock could create far more wealth than the temporarily withheld benefits cost him. The mistake is evaluating a startup offer by its cash salary while treating the equity as tomorrow’s money. The shares may need years to become spendable. For Social Security, it can become a paycheck the day it vests.
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Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
