Savvy Senior: How Working in Retirement Can Affect Your Social Security Benefits

Dear Savvy Senior,

I’m considering retiring later this year and starting my Social Security benefits, but would also like to work part time. Will this affect my benefits, and if so, how much?

Ready to Retire

Dear Ready,

You can collect Social Security retirement benefits and work at the same time, but depending on how old you are and how much you earn, some or all of your benefits could be temporarily withheld. Here’s what you should know.

Working Rules

Social Security says that if you’re under your full retirement age – which is 66 if you were born between 1943 and 1954, or 66 and 2 months if you were born in 1955 – and are collecting benefits, then you can earn up to $16,920 in 2017 without jeopardizing any of your Social Security if you don’t reach your full retirement age this year. But if you earn more than the $16,920 limit, you’ll lose $1 in benefits for every $2 over that amount.

In the year you reach your full retirement age, a less stringent rule applies. If that happens in 2017, you can earn up to $44,880 from January to the month of your birthday with no penalty. But if you earn more than $44,880 during that time, you’ll lose $1 in benefits for every $3 over that limit. And once your birthday passes, you can earn any amount by working without your benefits being reduced at all.

Wages, bonuses, commissions, and vacation pay all count toward the income limits, but pensions, annuities, investment earnings, interest, capital gains and government or military retirement benefits do not. To figure out how much your specific earnings will affect your benefits, see the Social Security Retirement Earnings Test Calculator at SSA.gov/OACT/COLA/ RTeffect.html.

It’s also important to know that if you do lose some or all of your Social Security benefits because of the earning limits, they aren’t lost forever. When you reach full retirement age, your benefits will be recalculated to a higher amount to make up for what was withheld. For details and examples of how this is calculated, see SSA.gov/planners/retire/ whileworking2.html.

For more information on how working can affect your Social Security benefits see SSA.gov/planners/retire/ whileworking.html, or call the Social Security at 410-965-2039 and ask to receive a free copy of publication number 05-10069, “How Work Affects Your Benefits.”

Tax Factor

In addition to the Social Security rules, you need to factor in Uncle Sam too. Because working increases your income, it might make your Social Security benefits taxable.

Here’s how it works. If the sum of your adjusted gross income, nontaxable interest, and half of your Social Security benefits is between $25,000 and $34,000 for individuals ($32,000 and $44,000 for couples), you have to pay tax on up to 50 percent of your benefits. Above $34,000 ($44,000 for couples), you could pay on up to 85 percent, which is the highest portion of Social Security that is taxable. About a third of all people who get Social Security have to pay income taxes on their benefits.

For information, call the IRS at 800-829-3676 and ask them to mail you a free copy of publication 915 “Social Security and Equivalent Railroad Retirement Benefits,” or you can see it online at IRS.gov/pub/irs-pdf/p915.pdf.

In addition to the federal government, 13 states – Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia – tax Social Security benefits to some extent too. If you live in one of these states, you’ll need to check with your state tax agency for details.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of “The Savvy Senior” book.