Whether by choice or necessity, a growing number of retirees seem to be going back to work. More than half of retirees over age 50 say they would work again if the right opportunity came along, according to RAND’s American Working Conditions Survey, and 39% of workers age 65 and older, who are employed today, had previously retired.
Yet, “unretirement” can raise some questions and confusion when it comes to managing Social Security benefits. “There’s a big misconception that retirees can’t go back to work or they’ll lose their Social Security,” says Steve Vernon, a consulting research scholar at the Stanford Center on Longevity and author of Retirement Game-Changers.
Maximize your payments
That isn’t the case at all. On the contrary, among the many benefits of working longer is that the longer you wait to claim your benefits (up to age 70), the higher the payout you’ll receive. For most people, “if you can afford to wait until age 70, you should,” says Michael Foguth, founder of the retirement planning firm Foguth Financial Group in Brighton, Mich.
Working longer can also increase the amount you receive in another way. The Social Security Administration calculates benefits on your average indexed monthly earnings during the 35 years in which you earned the most. “If you earned nothing or very little during some of those years, working again will erase those zeros,” Foguth adds.
What if you’re already receiving Social Security but want to go back to work? You may have three options: turn back the clock with a do-over; suspend your benefits for a higher payout later; or continue to collect your benefits while also collecting a paycheck.
Claiming a Social Security do-over if you’re already getting benefits
If you opted to claim your Social Security benefits but have changed your mind now that you have a paycheck again, you have options. As long as it’s been less than 12 months since you started your benefits, you can do a “do over.”
This is often a no-brainer for people who filed for early retirement benefits. If you claim Social Security at age 62, for example, you’ll get a 25% pay cut in benefits over the course of your lifetime. Whether or not you go back to work, you can change your mind—and boost your benefits—if you withdraw your application within 12 months and pay back what you’ve collected. There is no interest.
While paying back your benefits might be a tough hurdle to get over, it offers a true second chance. When you claim Social Security again down the road, your payments will be based on your new starting age and earnings history.
Pausing your Social Security benefits
If you are already at full retirement age, going back to work might also make it feasible to suspend your benefits—and thus improve your payouts when they kick in again later. That’s because you’ll get an 8% delayed retirement credit for every year you wait between full retirement age and 70, when the Social Security Administration will restart your benefits.
While the math is compelling, says Foguth, you’ll want to run your own numbers—and look at other areas of your finances—to find the optimal age for taking your benefit. Some people will come out ahead by keeping their benefits coming and putting them to work in ways that make sense, such as paying off high-interest debt or by freeing up funds for an employer-sponsored 401(k) with matching benefits.
Working while claiming Social Security
There is no rule prohibiting you from working and continuing to claim Social Security. That said, going back to work could temporarily decrease your payouts if you are not yet full retirement age.
“If you are under full retirement age, which for most people is 66, the threshold is $17,640,” says Vernon. For every $2 you earn over that threshold there is a $1 reduction in your current Social Security benefits. If you turn your full retirement age this year, the limit for earned income rises to $46,920, and the benefits reduction is $1 for every $3 earned over the limit until the month you reach full retirement age.
“But you aren’t forfeiting those benefits for good,” Vernon says. Those benefit reductions are merely deferred, and the Social Security Administration will credit those amounts to your benefits record when you reach full retirement age.
It’s also worth noting that up to 85% of your Social Security benefits can be taxable—by the federal government, plus the 13 states that also tax Social Security benefits. But that shouldn’t deter people who need or want to work from working: You’ll still come out ahead, financially and likely otherwise.