Will I Get Penalized for Working While Collecting Social Security Retirement?

If you work while receiving early retirement benefits, Social Security is likely to reduce your benefits, depending on how much you earn when you retire.

By , Attorney
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Because Social Security retirement benefits plus savings and other investments are often not enough to live on comfortably, many people keep working for at least a few years after they claim Social Security early retirement benefits. Other people keep their jobs or take new ones to stay active and involved in the world of work. If you keep working at a high enough salary, you may increase your lifetime earnings average, thereby slightly increasing your retirement benefits for the years to come.

Can You Collect Social Security at 62 and Still Work?

Yes, you can work after you start collecting Social Security retirement benefits, no matter what your age. But, if you claim early retirement benefits at age 62 (or 63, 64, 65, or 66) and continue to work, be aware that the money you earn over a certain amount each year may reduce your Social Security retirement benefits (until you reach full retirement age). This reduction in benefits applies only to the years you're working. It doesn't have a permanent effect on the amount of benefits you'll receive in future years (and you can even make back some of the reduction in future years—more on this below). So you can earn any amount at age 62, but it might cause a reduction in your benefits.

How Much Can You Make on Social Security?

How much you can earn when you retire depends on your age. Social Security has different rules for:

  • before the year you turn full retirement age
  • during the year you turn full retirement age, and
  • after you reach full retirement age.

Until you reach full retirement age, the Social Security Administration (SSA) will subtract money from your retirement check if you exceed a certain amount of earned income for the year. This penalty limits the amount you can earn when you retire (and still have it be worthwhile to work). For the year 2022, the maximum income you can earn after retirement is $19,560 ($1,630 per month), without having your benefits reduced. The amount goes up each year. The maximum income limit doesn't change depending on your age; in other words, it's the same whether you're 62, 63, or 64.

If you're collecting Social Security retirement benefits before full retirement age and you make more than this amount, Social Security will reduce your benefits by $1 for every $2 you earn over the limit. Once you reach full retirement age, you can make any amount of money and still receive your full Social Security retirement benefit.

Note that if you're working and you lose your job, you may collect unemployment benefits (assuming you otherwise qualify for them) even though you are also collecting your Social Security retirement benefits.

Special Rule as You Approach Full Retirement Age

If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age (67 for folks born in 1960 or later). If you will reach full retirement age in 2022, you can earn up to $4,330 per month without losing any of your benefits, up until the month you turn 67. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.

If you're self-employed, you may receive full benefits if, during the year you turn your full retirement age, there are any months in which you didn't perform what Social Security considers "substantial services." The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month (or between 15 and 45 hours in a highly skilled occupation). In other words, if you work in your business more than 45 hours in a month before you reach full retirement age, Social Security may reduce your benefit.

How Do You Report Earnings During Early Retirement?

The SSA bases its retirement benefit calculations on earnings reported on W-2 forms and on self-employment tax payments. Most individuals are not required to send in an estimate of earnings.

But Social Security does request earnings estimates from some recipients: those with substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission. Toward the end of each year, Social Security sends these people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. The SSA will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.

Once retirees reach full retirement age, Social Security will no longer check their income. Because there is no Social Security limit on how much a person can earn after reaching full retirement age, there is nothing to report.

Can I Gain Back the Reduction in Benefits From Working?

The amounts of early retirement benefits you lose as a setoff against your earnings due to work are not necessarily gone forever. When you reach full retirement age, Social Security will recalculate your benefits to make up for the reduction. Using a complicated calculation, the agency will actually adjust upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up gradually, a little bit each year. It will take up to 15 years to completely recoup your lost benefits. Unfortunately, the readjustment will not change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits (the early retirement penalty).

What Is the Early Retirement Penalty?

If you claim Social Security retirement benefits before your full retirement age, which is 67 for those born in 1960 or later, the SSA will permanently lower your benefits. Social Security does this to try to make the amount you receive over your life expectancy equal whether you claim at age 62 and get a reduced amount, 67 and get the standard amount, or 70 and get an increased amount.

The SSA will reduce your benefits by 5/9 of one percent per month for each month you receive benefits before your normal retirement age. This reduction is roughly equal to roughly .556% per month. For example, if you start claiming benefits 27 months before you turn 67, your monthly benefit will be reduced by 15% (27 x .556%). The reduction is permanent.

If you claim retirement benefits more than 36 months early, the per-month reduction is not quite as harsh. The SSA has a different calculation for the months over 36. For example, if you start claiming benefits 60 months before you turn 67, your benefit will be reduced by 30% (36 x .556% plus 24 x .417%). The earliest you can claim retirement benefits is 60 months before your retirement age.

To learn more about collecting Social Security benefits, you may want to consider reading Nolo's book, Social Security, Medicare, & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits.

Updated May 16, 2022

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