Although Social Security benefits are often associated with retirement income, you don’t have to stop working to receive Social Security benefit payments. Some people choose to continue part-time or even full-time work when they reach retirement age. Such work income may be necessary for some to supplement their Social Security payments. However, depending on your situation, the money you earn working can reduce the amount of your benefit check. Only money from work – earned income – reduces benefit payments, and only for certain people.
Definition of Earned Income
Earned income is money you earn through work. If you work for someone else, the wages you receive are earned income. If you work for yourself, the net income from your business is earned income. The Social Security Administration (SSA) counts wages when you earn them, not when they are paid. So if you earn wages in one month and don’t receive the payment until the next month, you should report the wages in the month they were earned. However, if you are self-employed, your income only counts when you receive the payment, not when you performed the work.
Income you earn from investments, interest, rents on property and money you collect from pensions, disability payments and retirement plans are examples of unearned income. Unearned income will not reduce the amount of your Social Security benefit payment.
Income and Benefits
If you have reached your full retirement age, earned or unearned income does not affect your Social Security benefits -- you can collect your full benefit no matter how much you earn. For people born between Jan. 2, 1943 and Jan. 1, 1955 the full retirement age is 66. If you haven't yet reached your full retirement age during the year in which you are collecting benefits, every $2 in earned income over $14,640 decreases your benefit payment by $1. If you begin the year younger than your full retirement age, then reach your full retirement age during that year, every $3 in earned income above $38,880 decreases your benefit payment by $1 until the month you reach full retirement age.
Even if the money you earn working reduces the amount of your benefit check now, you’ll get that money back when you reach full retirement age. That is because the SSA adds the money you don’t collect onto the payments you receive when you reach full retirement age. Also, you continue to pay Social Security taxes on your earnings, which increase your Social Security credits. The SSA recalculates benefits every year you continue to work. High earnings in any year could result in higher benefit payments.
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