The choice to work part-time while in retirement is often met with confusion regarding just how much income you can earn without putting your Social Security benefits in jeopardy. However, once you understand the rules, earning a part-time paycheck while in retirement can be a great way to supplement your income.
How it all works
According to the Social Security Administration (SSA), if you're younger than full retirement age while receiving SSA retirement benefits, working for an employer, and are earning additional income that exceeds the yearly earnings limit (as set by the SSA), your benefits may be reduced.1 However, beginning with the first month you reach full retirement age, you're allowed to earn as much as you want without a reduction of your benefits.
If you plan on working in retirement and are under your full retirement age for the entire year, the SSA will deduct $1 from your benefit payments for every $2 that you earn above the annual set limit. In the last year you reach your full retirement age, the earnings limit increases, and the Social Security Administration (SSA) will deduct $1 in benefits for every $3 you earn above the set limit.1 If you're self-employed, the SSA will consider your gross wages before withholding taxes and net earnings from your income.
By working part-time, you may be giving yourself a future raise
That's right. Because your Social Security benefit is based on your highest earning 35 years, those extra dollars you're earning may actually give you a raise in your benefits. For example, if any of the years while working part-time in retirement are higher than any of the other 35 years, the SSA will replace the lowest earning years. But wait, it gets even better.
The nice thing about working in retirement is that the SAA does all the calculating for you. Each year, the SSA reviews your record for working while receiving your benefits to see if additional earnings will increase your monthly benefit. If an increase is in order, the SSA will recalculate your new benefit amount and pay the increase retroactive to January, following the year of your additional earnings.
1. https://www.ssa.gov/planners/retire/whileworking.html
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