It can lead to long-term gains, but it could cost you in the short term.
Social Security’s earliest claiming age — 62 — remains one of its most popular, but not all those applying at this age are retired. Many choose to stay in the workforce while receiving checks, either out of financial necessity or because they enjoy working.
But this complicates your Social Security benefit calculation. Your checks are based on your income throughout your working years, which means your salary while on Social Security could affect your monthly checks. Here’s what you need to know.
How the government calculates your Social Security benefit
The Social Security Administration bases your retirement benefit on your average monthly income over your 35 highest-earning years, adjusted for inflation. This is simple to calculate when you retire before applying for Social Security. But it’s more complex when you’re working and claiming at the same time.
In this case, the Social Security Administration reviews your earnings record every year that you report earned income from a job. If your latest year of earnings is not among your 35 highest-earning years, it won’t change your monthly checks.
But if the last year was among your 35 most profitable, the Social Security Administration will rerun the benefit formula, taking this new year of earnings into account and discarding one of your earlier, lower-earning years. Then it will pay any resulting increase you’re due. This increase is retroactive to January of the year after you earned the funds. For example, if you have a high-earning year in 2024, the government will consider this and pay you any resulting increase beginning in January 2025.
Watch out for the earnings test
Working and claiming Social Security could help your benefit significantly over the long run, but it may reduce your checks in the short term if you’re under your full retirement age (FRA). This is between 66 and 67, depending on your birth year.
When working and claiming Social Security, the government withholds $1 from your checks for every $2 you earn over $22,320 in 2024 if you’ll be under your FRA all year. If you’ll reach your FRA in 2024, you only lose $1 for every $3 you earn over $59,520, assuming you earn this much before your birthday. This is known as the earnings test.
This reduction is temporary. When you reach your FRA, the government recalculates your benefit to include money it previously withheld due to the earnings test. And it won’t withhold money from future checks, regardless of how much you earn.
But the earnings test could still be problematic if you were counting on your checks to help you cover your expenses today. Try to estimate how much you’ll earn from your job this year and how that could affect your Social Security checks. Then adjust your budget accordingly. You may need to spend a little less or plan to cover more of your expenses with your employment income or personal savings.
If you have any questions about how working and claiming Social Security will affect your checks, reach out to the Social Security Administration online, by phone, or by visiting your local Social Security office.
