What’s the Limit for Earning with Social Security?

McNair Dallas Law

Retirement Nest Egg

Knowing when to retire and when to begin claiming benefits comes down to understanding yourself — and your finances.

Money Talks News’ recent article entitled “How Much Can I Earn Before Hurting My Social Security?” says there’s a key difference between retiring and claiming benefits. They don’t have to be done at the same time. They are two separate decisions.

If you can wait to claim beyond your full retirement age, you can really increase monthly benefits. Therefore, if you wait until age 70 to claim, your benefit will be 32% higher than the benefit you’d get if you claim at full retirement age.

Of course, the amount of flexibility you have in delaying claiming depends on what financial resources you have to tide you over until deciding to claim. If you have enough savings, you should think about how low interest rates are today and how little return you get in a savings account. As a result, spending savings now so you can claim benefits later, can lead to much higher benefit income from Social Security in the future.

However, if you don’t have sufficient savings, you’re probably not going to be able to delay claiming, unless you keep working. Therefore, then you should understand the impact continuing to work has on your Social Security benefits.

Continuing to work may increase your future benefits. This will happen if your present income that is subject to Social Security taxes is higher than your income in the past. Your benefits are based on your highest 35 years of earnings, adjusted for inflation. You might also be subject to the earnings test. If you’re not yet at full retirement age, Social Security might reduce your present benefit based on how much you earn.

Benefits lost because of the earnings test will increase benefits at full retirement age, so they aren’t really “lost.” However, the earnings test doesn’t apply once you reach full retirement age.

Therefore, continuing to work will not only bring in more income, but can possibly increase the baseline calculation of your benefits.

If, in addition, working lets you wait to claim your benefits, it could significantly increase the Social Security payments you receive for the rest of your life.

Reference: Money Talks News (Nov. 18), 2021) “How Much Can I Earn Before Hurting My Social Security?”

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