On social security and the return to work? Prepare for that unwanted surprise

If you’re a retiree struggling to make ends meet in the face of inflation, you’re definitely in good company. The cost of living has skyrocketed over the past year and although inflation is showing signs of easing, much progress still needs to be made before people see any noticeable relief.

You might especially struggle to manage your bills as a retiree if your main or only source of income is Social Security. While benefits increased by 5.9% at the start of 2022, the rate of inflation has far exceeded that increase this year.

If money has gotten uncomfortably tight, you may be at a point where you’re thinking about going back to work, either full-time or part-time. It could help you increase your income, accumulate savings, and more easily manage your living expenses in general.

A person in an apron standing in front of a bakery counter.

Image source: Getty Images.

But if you’re on Social Security, you’ll need to be careful before returning to work. Depending on your income, some of your Social Security benefits may be withheld.

Beware of the limit of income criteria

You are allowed to receive social security and earnings from employment at the same time. And once you reach full retirement age (FRA), either 66, 67, or somewhere in between, depending on your year of birth, you can earn any amount of income from a employment without affecting your benefits.

It’s when you work and you collect social security before having reached FRA you need to worry about earnings test limit. If your income exceeds a certain threshold, which changes from year to year, you risk seeing part of your Social Security benefits withdrawn.

To be clear, withheld benefits are not lost – they are simply withdrawn temporarily and paid to you later once you reach FRA. But it’s important to know what the earnings test limits look like if you’re already on Social Security before you reached FRA and are planning to get a job.

In 2022, you can earn up to $19,560 without your benefits being affected. From there, you’ll have $1 of Social Security withheld per $2 of earnings. If you reach FRA later this month / before the end of 2022, this limit increases to $51,960. From there, you’ll have $1 of Social Security withheld per $3 of earnings.

In 2023, the income test ceiling increases. You can earn up to $21,240 without affecting your benefits, but from there, you’ll have $1 of Social Security withheld for every $2 of earnings. If you reach FRA in 2023, that limit increases to $56,520, and from there you’ll have the same $1 of Social Security withheld per $3 of income.

Know the rules

Returning to work can be a smart thing to do if you’re struggling to keep up with your bills. Additionally, you may be eager to start working again, not only for the financial benefits, but also for the social aspect.

If you haven’t reached FRA yet, keep the earnings test limitations in mind before taking that leap. You may choose to intentionally limit your work hours to keep your earnings below the threshold that opens the door to withholding Social Security benefits.

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