How Much Money Can You Make While You’re on Social Security?
Understand how earning money impacts your Social Security benefits and when limits no longer apply.
Many individuals receiving Social Security retirement benefits also continue to work, either out of necessity or by choice. This often leads to questions about how earned income might affect monthly benefit payments. Understanding how earnings interact with Social Security benefits is important for beneficiaries to manage their finances effectively. The Social Security Administration (SSA) has guidelines that reduce benefits if a person earns above certain thresholds before reaching their full retirement age. These rules balance the program’s purpose of providing retirement income with the desire for some beneficiaries to remain in the workforce.
Understanding the Social Security Earnings Limit
The Social Security Administration imposes an earnings limit on beneficiaries who have not yet reached their full retirement age (FRA). This limit determines how much a person can earn before their Social Security benefits are reduced. The annual earnings limit depends on whether the beneficiary is under or reaches full retirement age during the year.
For individuals under their full retirement age for the entire year, the 2024 earnings limit is $22,320. For those who will reach their full retirement age during the year, a higher 2024 limit of $59,520 applies, but only earnings before the month they reach their full retirement age count toward this limit. These limits are subject to annual adjustments by the Social Security Administration, so beneficiaries should check current figures directly from the SSA.
How Earnings Reduce Your Benefits
When a beneficiary’s earnings exceed the applicable limit, the Social Security Administration will reduce their benefits according to specific formulas. For those who remain under full retirement age for the entire year, $1 in benefits is withheld for every $2 earned above the annual limit. For instance, if someone earns $24,320 in 2024, which is $2,000 over the $22,320 limit, their Social Security benefits would be reduced by $1,000 ($2,000 / 2).
For beneficiaries who reach their full retirement age during the year, a different reduction rule applies. In this scenario, $1 in benefits is withheld for every $3 earned above the higher annual limit, but this only applies to earnings before the month they attain their full retirement age. For example, if a person reaches FRA in August 2024 and earns $60,000 before August, which is $480 over the $59,520 limit, their benefits would be reduced by $160 ($480 / 3). Benefits withheld due to these earnings limits are not permanently lost; instead, they are typically added back to the beneficiary’s monthly payment amount once they reach full retirement age, potentially resulting in a higher future benefit.
Types of Income Included in the Earnings Test
The Social Security earnings test considers “earned income” when determining if benefits are reduced. This primarily includes wages from employment and net earnings from self-employment. Examples include gross wages, net profits from a business, bonuses, commissions, and accumulated sick or vacation pay.
Conversely, many other types of income do not count towards the Social Security earnings limit. These include pensions, annuities, investment income such as interest, dividends, and capital gains, as well as government or military retirement benefits. Workers’ compensation and unemployment benefits are also excluded from the earnings test. The distinction is important, as income from investments or other non-work sources does not affect Social Security benefits, regardless of the amount.
Earning Rules After Full Retirement Age
Once a Social Security beneficiary reaches their full retirement age (FRA), the earnings limit no longer applies. This means individuals can earn any amount without their Social Security benefits being reduced. The Social Security Administration will pay the full benefit amount, regardless of how much the beneficiary earns.
Any Social Security benefits withheld prior to reaching full retirement age due to exceeding the earnings limit are typically factored back into the benefit calculation. The SSA will recalculate the monthly benefit to account for these previously withheld amounts, which can lead to an increase in the beneficiary’s monthly payment for the remainder of their life. Understanding one’s specific full retirement age, which varies based on birth year, is important for planning.