Will I Get Penalized for Working While Collecting Social Security Retirement? (2024)

For many people, Social Security retirement benefits plus savings and other investments aren't enough to live on comfortably. That's why some people keep working for at least a few years after they claim Social Security early retirement benefits. Some people keep their jobs but work part-time, or they take new ones to stay active and involved in the world of work.

If you keep working at a high enough salary, you might increase your lifetime earnings average, thereby slightly increasing your retirement benefits for the years to come. But you also might get hit with Social Security's double early retirement penalty, depending on how much you earn. (Scroll to the end of the article to learn about Social Security's standard early retirement penalty for claiming benefits before full retirement age.)

Can You Collect Social Security at 62 and Still Work?

Yes, you can work after you start collecting Social Security retirement benefits, no matter what your age. But, if you claim early retirement benefits at age 62 (or 63, 64, 65, or 66) and continue to work, be aware that the money you earn over a certain amount each year will reduce your Social Security retirement benefits (until you reach full retirement age).

The reduction in benefits applies only to the years you're working. Your earnings don't permanently lower the amount of benefits you'll receive in future years (and you can even make back some of the reduction in future years—more on this below).

So you can earn any amount at age 62, but it might cause a reduction in your benefits.

How Much Can You Make on Social Security?

How much you can earn when you retire depends on your age. Social Security has different rules for:

• before the year you turn full retirement age
• during the year you turn full retirement age, and
• after you reach full retirement age.

Until you reach full retirement age, the Social Security Administration (SSA) will subtract money from your retirement check if you exceed a certain amount of earned income for the year. This penalty limits the amount you can earn when you retire and still have it be worthwhile to work.

For the year 2024, the maximum income you can earn after retirement is $22,320 ($1,860 per month) without having your benefits reduced. The amount that's exempt goes up each year. (88 F.R. 7803.) The maximum income limit (what Social Security calls the "retirement earnings test") doesn't change depending on your age; in other words, it's the same whether you're 62, 63, 64, or 65.

If you're collecting Social Security retirement benefits before full retirement age and you make more than this amount, Social Security will reduce your monthly benefits by $1 for every $2 you earn over the limit. Once you reach full retirement age, you can make any amount of money and still receive your full Social Security retirement benefit.

Special Rule for the Year You Reach Full Retirement Age

If you're already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age (67 for people born in 1960 or later).

If you'll reach full retirement age in 2024, you can earn up to $4,960 per month without losing any of your benefits, up until the month you turn 67. But for every $3 you earn over that amount in any month before you turn 67, you'll lose $1 in Social Security benefits.

Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.

If you're self-employed, you can receive full benefits if, during the year you turn your full retirement age, there are any months in which you didn't perform what Social Security considers "substantial services."

The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month (or between 15 and 45 hours in a highly skilled occupation). In other words, if you work in your business more than 45 hours in a month before you reach full retirement age, Social Security could reduce your benefit. (Read more about what Social Security considers substantial services for the self-employed.)

How Do You Report Earnings During Early Retirement?

The SSA bases its retirement benefit calculations on earnings reported on W-2 forms and on self-employment tax payments.

But Social Security may request earnings estimates from some recipients, especially recipients of retirement benefits whp have substantial self-employment income or those whose reported earnings have varied widely from month to month, including people who work on commission.

Toward the end of each year, Social Security sends these people a form asking for an earnings estimate for the following year. The agency uses the information to calculate benefits for the first months of the following year. The SSA will then adjust the amounts, if necessary, after it receives actual W-2 or self-employment tax information in the current year.

Social Security doesn't count pension payments, money made through investments, interest earned on bank accounts, or government benefits as earnings. (20 C.F.R. § 416.1110.)

Once retirees reach full retirement age, Social Security will no longer check their income. Because there's no Social Security limit on how much a person can earn after reaching full retirement age, there's nothing to report.

Will I Get Back the Reduction in Benefits From Working?

The amounts of early retirement benefits you lose as a setoff against your earnings due to work aren't necessarily gone forever. When you reach full retirement age, Social Security will recalculate your benefits to make up for the reduction.

Using a complicated calculation, the agency will actually adjust upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up gradually, a little bit each year. It can take up to 15 years to completely recoup your lost benefits.

The calculations are complicated, but, to increase your monthly benefit, Social Security actually reverses part of the reduction it made when you claimed early retirement benefits. (Note that this reversal doesn't apply if you worked while collecting early spousal or survivors benefits because you were caring for a minor or disabled child.)

What Is the Early Retirement Penalty?

If you claim Social Security retirement benefits before your full retirement age, which is 67 for those born in 1960 or later, the SSA will permanently lower your benefits. Social Security does this to try to make the amount you receive over your life expectancy equal whether you claim at age 62 and get a reduced amount, at age 67 and get the standard amount, or at age 70 and get an increased amount.

The SSA will reduce your benefits by 5/9 of one percent per month for each month you receive benefits before your normal retirement age. This reduction is roughly equal to roughly .556% per month. For example, if you start claiming benefits 27 months before you turn 67, your monthly benefit will be reduced by 15% (27 x .556%). The reduction is permanent.

If you claim retirement benefits more than 36 months early, the per-month reduction is not quite as harsh. The SSA has a different calculation for the months over 36. For example, if you start claiming benefits at age 62, 60 months before you turn 67, your benefit will be reduced by 30% (36 x .556% plus 24 x .417%).

The earliest you can claim retirement benefits is 60 months before your retirement age.

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