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Social Security & working in retirement

Can you continue to work and collect Social Security? Yes, but there's a catch.

POINTS TO KNOW

  • If you work and collect Social Security before full retirement age (FRA), the Social Security Administration (SSA) could temporarily take back some of your benefits.
  • Wages, bonuses, commissions, and vacation pay count against your Social Security benefits, while investment income, dividends, and interest (among others) are excluded.
  • If you reach FRA and continue to work, there's no limit on how much you can earn.

The 3 rules for working & collecting benefits

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Before you reach FRA

If you collect Social Security benefits between ages 62 and your full retirement age (FRA) (66 to 67 depending on your birth year), your income is subject to an earnings test. If you earn too much, your benefits will be temporarily reduced—but not lost.

  • In 2019, the earnings threshold is $17,640.
  • Beyond this amount, your benefit will be cut by $1 for every $2 earned above the limit.
  • Once you reach FRA, any benefits that were withheld will be returned to you in the form of higher monthly payments.

The year you reach FRA

The earnings test still applies, but the rules are a little different in the calendar year you reach full retirement age (FRA).

  • In 2019, the earnings threshold is $46,920.
  • Beyond this amount, your benefits will be reduced by $1 for every $3 earned above the limit.
  • The reduction only applies to income earned above the limit in the months leading up to your birthday month.
  • Once you reach your FRA birthday month, any benefits that were withheld will be returned to you in the form of higher monthly payments.

At FRA & the years afterward

You keep all your benefits, regardless of how much you earn. In fact, working once you reach full retirement age (FRA) can have these advantages:

Higher benefits. You can add to your earnings record, potentially resulting in higher monthly benefits when you claim Social Security.

A boost to your retirement accounts. You can continue to contribute to your IRA and 401(k) including catch-up contributions.

Tax-deferred growth. Continuing to contribute to your retirement accounts gives them the opportunity to grow tax-deferred.

What income counts & when for the earnings test

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What counts

Wages, bonuses, commissions, and vacation pay from a job in the year they're earned, not paid. For example, bonuses may be earned in one year but paid the following year.

Net earnings from self-employment when they're paid, not earned—unless they're paid the year after you become entitled to Social Security and earned before you became entitled.

Contributions to a pension or retirement plan if that amount is included in your gross wages.

What doesn't count

Special rule for the year you retire

If you retire before reaching full retirement age (FRA), and you've already earned more than the annual earnings limit, there's a special rule that applies for that year.

It allows you to receive a full Social Security check for each whole month the Social Security Administration considers you to be retired, regardless of your yearly earnings.

You're considered retired if:

You're younger than FRA the entire year and your monthly earnings in retirement fall within a certain range ($1,470 or less in 2019) and you didn't perform substantial services in self-employment.

You reach FRA in the year you retire and your monthly earnings in retirement fall within a certain range ($3,910 or less in 2019) and you didn't perform substantial services in self-employment.

A Vanguard advisor can help

If you're struggling with making your best Social Security decision, we can help. You'll also get a custom financial plan, ongoing portfolio management, investment coaching, and real-time goal tracking—all at a low cost.

Your Social Security guide


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REFERENCE CONTENT

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).

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Earnings test

The temporary reduction in benefits if you work while receiving benefits before you reach full retirement age (FRA). In the month in which you reach FRA and thereafter, the earnings test doesn't apply to your income, and there’s no limit on your earnings.

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).

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Earnings test

Revenue for a specified period of time, after related costs and expenses have been deducted.

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).

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Individual retirement account (IRA)

A type of account created by the IRS that offers tax benefits when you use it to save for retirement.

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401(k) plan

A type of employer-sponsored retirement plan that allows employees to contribute pre-tax dollars by deferring salary. Many plans offer a variety of investment options, and employers often match a percentage of employee contributions.

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Catch-up contribution

An additional amount that taxpayers age 50 or older can invest for retirement on a tax-deferred basis.

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Tax deferral

Delaying the payment of income taxes on earnings generated in an investment account. For example, if you have a traditional IRA, you don't pay income taxes on the interest, dividends, or capital gains accumulating in the account until you begin making withdrawals.

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Interest

Income you can receive on an investment such as a bond. The bond's interest rate is specified when it's issued.

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Pension plan

An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.

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Annuity

A financial product typically used by investors to save tax-deferred for retirement or to generate regular income payments in retirement.

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Capital gain/loss

The difference between the sale price of an asset—such as a mutual fund, stock, or bond—and the original cost of the asset.

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).

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Special rule for the year you retire

Joe is 64, retires in October, and has earned $45,000 so far for the year. He then takes a part-time job, earning $500 in November and December.

Although his annual earnings are well over the annual limit of $17,640, he'll still get a full Social Security check for the last 2 months of the year. Why?

That's because his monthly earnings of $500 fall within the limit for retirees younger than FRA—$1,470 or less.

But if Joe were to earn more than the monthly limit in either November or December, he wouldn't receive a benefit for that month. Starting in the next year, only the annual limit will apply.

What if Joe were self-employed? The Social Security Administration would consider how much work he did in his business to determine his retirement status (more than 45 hours a month to a business or between 15 and 45 hours to a business in a highly skilled occupation).

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Full retirement age (FRA)

The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).