Oct 25, 2020
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The decision to file for Social Security is a big one. Claim benefits too soon, and you risk slashing them on a monthly basis for life. Wait too long, and you risk losing out on lifetime income.
One factor that may influence your decision to file or not is your job status. If you're working, you may want to wait on Social Security and grow your monthly benefit. The good news is that you're allowed to hold a job and collect Social Security at the same time. Whether that impacts your benefits depends on your age and earnings level.
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You're entitled to your full monthly Social Security benefit based on your earnings history once you reach full retirement age. FRA is 66, 67, or 66 and a certain number of months, depending on your year of birth. Once you reach FRA, you can earn as much money as you'd like without impacting your Social Security income. If you claim benefits before FRA and continue working, you'll have to worry about the earnings test.
What are the 2021 earnings test limits?
If you work and collect Social Security prior to FRA, you'll be subject to the earnings test. If your income exceeds a certain limit that changes from year to year, you risk having some of your benefits withheld.
In 2020, you could earn up to $18,240 without having it impact your benefits, assuming you hadn't yet reached FRA. In 2021, that limit is increasing to $18,960. Once your income exceeds that point, you'll have $1 in Social Security withheld for every $2 you earn. Furthermore, if you'll be reaching FRA in 2021, that limit increases to $50,520 (up from $48,600 in 2020). From there, you'll have $1 in Social Security withheld for every $3 you earn.
Graphic explaining earnings test limits
Keep in mind that the benefits you've withheld for exceeding the earnings test limits aren't lost on a permanent basis. Rather, they'll be added back into your monthly benefit once you reach FRA. The hit in benefits you'll face for filing for Social Security before FRA will remain in effect on a permanent basis since that reduction applies regardless of whether you work. If you're earning enough from a job to risk having benefits withheld, it may not be worth it to file.
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Of course, some seniors choose to work during retirement to supplement their income or give themselves something to do with their time. If you file for benefits at, say, age 62, and then get a job that pays you $1,500 a month, you won't have to worry about having any of your Social Security income withheld. Before you commit to a work schedule, see what your earnings entail. It may be worth your while to keep your earnings below next year's threshold to avoid having any benefits withheld, even though you'll get that money back at a later age.
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