How Much Can I Earn While On Social Security in 2024 : Collecting Social Security benefits before your full retirement age while continuing to work can get complicated. The Social Security Administration (SSA) applies earnings limits that can temporarily reduce your monthly payments if you exceed certain thresholds. Understanding how these retirement earnings test rules work is crucial to maximize your income.
Social Security benefits are available as early as age 62, but they are reduced if you start collecting before your full retirement age (FRA), which is 66 or 67 depending on your birth year. The SSA uses the retirement earnings test to prevent double dipping, where someone collects a full benefit while still earning a full salary. However, the rules are nuanced and allow for some work income while still getting partial benefits.
As we look ahead to 2024, anyone who claims Social Security early will need to be aware of the earnings limits to avoid losing part of their benefit temporarily. This article will explain exactly how much you can earn next year while on Social Security.
Earnings Limits in 2024
The Social Security retirement earnings test distinguishes between two levels of earnings: a lower exempt amount and a higher earnings limit.
Exempt Amounts vs. Non-Exempt Amounts
For anyone under full retirement age in 2024, the SSA disregards the first $21,240 in annual earnings. This exempt amount enables you to earn a modest income without any reduction in benefits.
But if your earnings surpass that threshold, Social Security will start deducting benefits at the rate of $1 for every $2 you are over the limit. These non-exempt earnings over $21,240 offset your payments dollar for dollar up to the higher annual limit.
Exact Earnings Limits for 2024
For anyone reaching full retirement age in 2024 or later, the exact annual limits are:
- Exempt amount: $21,240
- Higher limit: $56,520
If you will reach your full retirement age in 2023, a more generous exempt amount applies:
- Exempt amount: $51,960
- Higher limit: No limit until the month you reach full retirement age
These figures typically adjust year to year based on the national average wage index.
How the SSA Calculates Reductions
If you earn over the lower exempt amount, Social Security will withhold benefits as follows:
- For every $2 over the exempt amount, $1 is withheld from your benefits.
- Once you hit the higher earnings limit, your full monthly benefit is suspended.
For example, say your monthly benefit at 62 is $1,000 and you earn $30,000 during the year. You are $8,760 over the 2024 exempt amount ($30,000 – $21,240). Half of the excess is $4,380. So the SSA would deduct $4,380 from your annual benefits, or $365 per month.
Example Scenarios
To understand how this translates to real-world situations, here are a few examples:
- If you earn $15,000, you fall under the exempt amount and face no reduction.
- Earning $28,000 would trigger a $1,380 deduction (for exceeding the exempt amount by $6,760).
- At $55,000 of earnings, your benefit would be completely eliminated by the excess earnings.
- Once earnings surpass $56,520, your monthly benefit stops regardless of the amount.
As these examples demonstrate, you can still collect some benefits while working, up to a point. Understanding what that point is can help guide your career and financial decisions.
Strategies to Maximize Earnings
If you want to continue working or have a side gig in addition to Social Security benefits, several strategies can help maximize your income while avoiding excess deductions.
Delay Collecting Benefits
The simplest approach is waiting until your full retirement age or later to begin benefits. The earnings test disappears at full retirement age, so you can earn any amount without reductions.
Opt Out of Withholdings
Another option is to have Social Security temporarily withhold the entire monthly benefit when your earnings will exceed the annual limits. This prevents having to repay overpayments later.
Watch for Annual Changes
The exempt amount and earnings limits usually increase slightly each year. So you may suddenly have more breathing room if a pay raise pushes you over the old threshold.
Consider Spouse’s Earnings
If you file for spousal benefits based on your spouse’s work record, only your own earnings apply to the retirement test. Your spouse’s income does not affect your spousal benefits.
Weigh Pros and Cons of Extra Work
Working enough to trigger deductions may still boost your overall income for the year. But carefully compare the monetary tradeoffs and other factors like tax burdens, health insurance, retirement savings, and leisure time.
Balancing immediate earnings with long-term Social Security optimization is crucial.
Impact on Future Payments
Losing some Social Security income to working excessively before your full retirement age is not without consequences. But it does not necessarily mean you lose that money forever.
How Extra Income Affects your AIME
The SSA recalculates your benefit when you reach full retirement age. They take your 35 highest years of earnings, adjust them for inflation, and average them to get your Average Indexed Monthly Earnings (AIME). This is used to determine your final payment amount.
So working more now at a higher income can boost your AIME and permanently increase your benefit later.
Increased Benefits Down the Road
At your full retirement age, Social Security will recalculate and increase your benefit to make up for any months that were fully withheld due to excess earnings.
Make Up for Lost Income Later
Even if some benefits are permanently lost due to exceeding the earnings limits, working longer before claiming allows your benefit to grow. This essentially uses wages to replace the temporarily reduced Social Security income.
Taxes on Benefits
Another consideration is income taxes. A portion of your Social Security benefits may become taxable when you earn other income like wages or self-employment profits.
How Much is Taxable?
Up to 50% of your benefits are taxable if your “combined income” exceeds $25,000 as a single filer or $32,000 as a joint filer. And up to 85% of benefits are taxable above $34,000 or $44,000 respectively. Combined income includes your adjusted gross income, non-taxable interest, and half your annual Social Security payments.
Withholding vs. Estimated Payments
To cover these taxes, you can choose to have federal income tax withheld from your benefit payments each month. The other option is to make quarterly estimated tax payments. This prevents an unexpected tax bill.
Strategies to Reduce Taxes
Some ways to reduce combined income and taxes on benefits include contributing to tax-advantaged retirement plans, limiting Roth conversions, harvesting capital losses, and claiming itemized deductions.
Conclusion
Understanding Social Security’s earnings limits enables you to maximize your income in retirement. As the rules for 2024 demonstrate, you may be able to work and earn well over $21,240 while still collecting partial benefits. Carefully weigh the tradeoffs of current earnings versus long-term increases to your monthly payment. With proper planning, you can make working past 62 while claiming benefits advantageous both now and in the future.
FAQs
Does unemployment count toward the earnings limit?
No, unemployment compensation does not count as earnings for purposes of the retirement earnings test. Only wages from a job or net self-employment income are included.
What if I collect a pension or retirement account withdrawal?
Pensions, 401(k)/IRA withdrawals, investment earnings, savings account interest, and other non-work income do not apply to the earnings limits in any way. Only earned income from working counts.
What if I have income from an overseas job?
Foreign earnings from working abroad are still considered earned income and count toward the earnings limits. The retirement earnings test applies to worldwide income.
Do pensions or retirement benefits reduce Social Security payments?
No, your Social Security benefit is not affected by pensions, 401(k)s, IRA withdrawals, or any other retirement income sources. Only earned income from current work is considered.
What if I own a business or farm?
Net self-employment income reduces your Social Security benefits under the earnings limits just like wages. Special rules apply to estimate your net profit if your business or farm operates at a loss.
