Un-Retiring? Here’s How It Could Impact Your Social Security Benefits

Inflation has made 2022 a very hard year for many people. Higher living costs have forced many consumers to rack up credit card debt and raid their savings at an uncomfortable pace just to stay afloat. And while the pace of inflation has thankfully slowed since peaking earlier this year, we could still be in for many more months of soaring living expenses.

If you're retired, and you've been forced to aggressively withdraw from your nest egg to cope with higher living expenses, you may be thinking that it's time to go back to work. Getting back into the labor force could make it possible to leave your savings alone for a while, and even boost your cash reserves so you're better positioned to cope with higher costs.

But if you're going to un-retire and return to a job at a time when you're already collecting Social Security, you might face one unpleasant surprise. And it could throw your financial plans for a loop.

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When you risk having benefits withheld

The Social Security Administration allows people to receive a monthly benefit even if they're still gainfully employed, or returning to work. And once you reach full retirement age (FRA) for Social Security purposes, you can earn any amount of money from a job without having it reduce your benefits.

But let's say you retired and signed up for Social Security at age 62 a couple of years ago, and now, you're 64 years old and thinking of going back to work. In that case, earnings that exceed a certain limit could cause your Social Security paycheck to shrink.

This year, you can earn up to $19,560 a year in that situation without your benefits being affected. In 2023, that limit will rise to $21,240. But beyond that, you'll risk having $1 in Social Security income withheld for every $2 you earn.

You should know that these earnings test limits are different for people when they're collecting Social Security and working the year they'll be reaching FRA. In that case, the earnings limit in 2022 is $51,960. In 2023, it's $56,520. Beyond that point, someone in that boat risks having $1 in Social Security withheld per $3 of earnings.

It's also worth noting that withheld Social Security benefits in these situations aren't lost completely. If you have some benefits withheld for earning too much, that money will be paid back to you once you reach FRA.

But all told, if you're on Social Security and are thinking about returning to the labor force due to today's tough economic climate, you should carefully read up on the rules involved. You may decide to return to work on a partial basis to avoid having Social Security income withheld. Or you may decide that you need a full-time job, but that you'll cope with a lower Social Security benefit each month.

The key, either way, is to not get caught off-guard. That's really when you might run into a world of financial trouble.

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