Many people of social security age choose to continue to work.  Some decide to delay applying for social security retirement benefits until as late as possible (age 70) while others choose to collect benefits as well as paychecks.  Each person’s situation is unique and only a proper analysis of cash flow, income tax and social security benefits can tell you which is best for you.

It is helpful, however, to first understand the ramifications of working while claiming benefits.  Keep in mind that, for each of the following, “earnings” refers only to money earned from employment.

Some Benefits May Be Withheldworking affects SS Benefits

Before Full Retirement Age [FRA] (look up here), your employment earnings will likely cause some of your benefits to be “withheld”.  Notice that the word is “withheld” and not “lost”.  It is a common misconception that these withholdings are a penalty of some sort and are lost forever.  That is not true.  Your retirement benefits are recalculated after full retirement age, taking into account:

  • new amounts contributed,
  • any amounts withheld due to employment, and
  • whether your ongoing employment has increased your ‘average earnings’ (an average of your highest 35 years of earnings).

Higher average earnings, additional contributions and even withheld benefits all serve to increase future benefits.

The Earnings Test

To see how much may be withheld in the years before you reach Full Retirement Age, you can use the online Retirement Earnings Test Calculator or the following formulae:


Amount Withheld

2013 Threshold

Under FRA for entire year

$1 for every $2 above threshold


Year you reach FRA – for months BEFORE birthday

$1 for every $3 above threshold


Beginning the month you reach FRA

No Limit on Earnings

No Limit on Earnings

Don’t Be Surprised if Benefits Suddenly Stop!

There is a lag of time between receiving a paycheck, the reporting of your earnings to the Social Security Administration, and the Earnings Test Calculations.  You may find that your benefit unexpectedly stops!  That is because a benefit withholding amount for a previous period has been calculated and is now being applied until fully repaid.  If you wish, you can call the Social Security Administration at 1-800-772-1213 and ask that the withholding be spread pro-rata over a number of months.

Receiving deferred sick pay, vacation pay, severance checks and the like after retirement often MISTAKENLY triggers the above scenario.  If this is the case, notify the Social Security Administration that ‘these amounts were earned prior to applying for Social Security Retirement Benefits,’ and this situation will be corrected.

Permanent Benefit Reductions

If you elect to take benefits early (i.e. before your FRA), your benefits will be actuarially reduced and this reduction is permanent.  It has nothing to do with working or withheld benefits due to an earnings test.  Taking benefits early can work out in your favor if you die before the ‘breakeven age’ – but against you if you live longer.  Your financial planner can run these numbers for you.

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