Many Americans approaching retirement wonder if they should keep working while claiming Social Security benefits. On the surface, it may seem like a good idea to boost your income, but there are important factors to consider before making this decision. While working and collecting benefits can have advantages, there are also potential drawbacks that could impact your financial future. Here’s a breakdown of two major benefits and three possible downsides of working while claiming Social Security.
The Pros of Working and Claiming Social Security
1. Increased Financial Security
One of the biggest advantages of working while claiming Social Security is having an extra source of income. Social Security benefits alone may not be enough to cover all your expenses, especially with rising inflation and healthcare costs. A paycheck from a job can help fill the gap, allowing you to maintain your lifestyle, save more, and reduce the risk of outliving your retirement savings.
Additionally, continuing to work can help you pay down debt, build an emergency fund, or even fund hobbies and travel in retirement. The extra income gives you more financial freedom and security, making retirement less stressful.
2. Potential for Higher Future Benefits
Social Security benefits are based on your highest 35 years of earnings. If you keep working and earn a higher salary than in your earlier years, your future benefits could increase. This is especially beneficial if some of your past earnings were low or if you didn’t work a full 35 years.
Moreover, if you delay claiming Social Security until after your full retirement age (FRA), your monthly benefit increases. For those who can afford to wait, this can mean a significantly higher payout in the long run.
The Cons of Working and Claiming Social Security
1. Benefit Reductions if You’re Under Full Retirement Age
If you claim Social Security before reaching your full retirement age (FRA) and continue working, your benefits may be temporarily reduced. In 2024, for example, the Social Security Administration (SSA) withholds $1 for every $2 you earn above $22,320 if you’re younger than FRA. In the year you reach FRA, the limit increases to $59,520, and the penalty is $1 for every $3 earned above the threshold.
However, once you reach your full retirement age, these withheld benefits are recalculated, and you will receive higher payments later. But if you rely on Social Security as a primary source of income, these temporary reductions could be a challenge.
2. Higher Taxes on Your Benefits
When you work and claim Social Security, part of your benefits may become taxable. If your combined income (which includes adjusted gross income, tax-exempt interest, and half of your Social Security benefits) exceeds a certain threshold, you might have to pay taxes on up to 85% of your benefits.
- If you file as an individual and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed.
- If your combined income is more than $34,000, up to 85% of your benefits could be taxable.
- For married couples filing jointly, taxes kick in when combined income is above $32,000.
This added tax burden can reduce the amount of money you actually receive, making it important to calculate whether working while claiming benefits is financially beneficial.
3. Potential Impact on Other Retirement Benefits
If you receive income-based benefits such as Medicaid or Supplemental Security Income (SSI), additional earnings from work could disqualify you from these programs. Some retirees also face increased Medicare premiums if their income surpasses certain limits. This is known as the Income-Related Monthly Adjustment Amount (IRMAA), which could lead to higher deductions from your Social Security check to cover Medicare Part B and Part D premiums.
Before deciding to work and claim Social Security, it’s essential to evaluate how your total income will affect your eligibility for these programs and any additional costs you might incur.
Bottom Line: Is It Worth It?
Deciding whether to work while collecting Social Security benefits depends on your individual financial situation. If you need extra income, have a strong earning potential, and can manage potential tax implications, working while claiming benefits can be a smart move. However, if you are near your full retirement age and rely heavily on Social Security, you should carefully consider the reduction in benefits and potential tax increases.
Before making a decision, it’s a good idea to consult with a financial advisor or use online calculators to see how working could affect your overall retirement income. Planning ahead can help you make the most of your benefits and ensure you have a secure and comfortable retirement.
Disclaimer: This article has been meticulously fact-checked by our team to ensure accuracy and uphold transparency. We strive to deliver trustworthy and dependable content to our readers.
Jon King is an experienced journalist with 3 years of experience in the field. With a strong background in investigative reporting, Jon is known for his in-depth coverage of crime news, finance news, local news, and USA news. Currently working with Mikeandjonpodcast, Jon brings his sharp investigative skills, where he provides timely updates and analysis on a wide range of topics. His commitment to delivering accurate and impactful news has earned him a reputation for providing insightful and comprehensive stories that resonate with his audience.
