On Social Security and Going Back to Work? Prepare for This Unwanted Surprise

If you're a retiree who's struggling to make ends meet in the face of inflation, you're no doubt in good company. Living costs have soared over the past year, and while inflation is showing signs of cooling, a lot of progress still needs to be made before people get notable relief.

You might especially be struggling to manage your bills as a retiree if your main or only source of income is Social Security. While benefits got a 5.9% raise at the start of 2022, the rate of inflation has far outpaced that increase this year.

If money has gotten uncomfortably tight, you may be at a point where you're thinking of going back to work — whether on a full-time or part-time basis. Doing so could help you boost your income, build up some savings, and have an easier time managing your living costs in general.

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But if you're on Social Security, you'll need to be careful about going back to work. Depending on your income, you may end up having some of your Social Security benefits withheld.

Beware the earnings-test limit

You're allowed to collect Social Security and income from a job at the same time. And once you reach full retirement age (FRA), which is either 66, 67, or somewhere in between, depending on your year of birth, you can earn any amount of income from a job without affecting your benefits whatsoever.

It's when you're working and collecting Social Security before having reached FRA that you need to worry about the earnings-test limit. If your income exceeds a certain threshold that changes from year to year, you risk having some of your Social Security benefits withheld.

To be clear, withheld benefits aren't forfeited — they're simply taken away temporarily and paid to you later on, once you reach FRA. But it's important to know what the earnings-test limits look like if you're already on Social Security before having reached FRA and are making plans to get a job.

In 2022, you can earn up to $19,560 without having your benefits affected. From there, you'll have $1 in Social Security withheld per $2 of earnings. If you're reaching FRA later this month/before 2022 wraps up, that limit increases to $51,960. From there, you'll have $1 in Social Security withheld per $3 of earnings.

In 2023, the earnings-test limit is increasing. You can earn up to $21,240 without affecting your benefits, but from there, you'll have $1 in Social Security withheld for every $2 of earnings. If you're reaching FRA in 2023, that limit rises to $56,520, and from there, you'll have the same $1 in Social Security withheld per $3 of income.

Know the rules

Returning to work may be a smart thing to do if you're struggling to keep up with your bills. Plus, you may be eager to start working again, not just for the financial benefits, but also the social aspect.

If you haven't yet reached FRA, be mindful of the earnings-test limits before taking that leap. You may decide to limit your working hours intentionally to keep your income below the threshold that opens you up to having Social Security benefits withheld.

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