How Working During Retirement Impacts Social Security Benefits

Returning to work during retirement might seem like a great way for your clients to supplement income – but they’ll need to understand what this might mean for their retirement income.

According to Michael D. Landsberg, CPA/PFS and member of the American Institute of CPAs’ Personal Financial Planning Executive Committee, Social Security planning is a major consideration for retirees looking for work. Depending on the situation, income earned during retirement may reduce Social Security benefits.

The impact of reentering the workforce while receiving Social Security depends on the client’s age and how much they earn. If your client is looking to return to the workforce while collecting Social Security benefits prior to full retirement age, he or she will need to assess whether the income exceeds established threshold amounts.

 “If an individual re-enters the workforce prior to full retirement age (FRA) – currently 66 years old – he or she will be subject to a Retirement Earnings Test, which temporarily reduces current benefits if earned income received is above certain thresholds,” Landsberg says.

Your clients may be surprised to find out the relatively small amount set for the earnings threshold.

“If you are collecting Social Security and are under your Full Retirement Age FRA, you are limited to earning $16,920 if you want to keep all of your Social Security benefits,” says Ted Sarenski, CEO and president of wealth management firm Blue Ocean Strategic Capital. But for every $2 earned above $16,920, the Social Security benefit is reduced by $1. Anyone working after FRA is not subject to the rule; they receive full benefits regardless of earnings.