As the cost of living continues to rise and inflation squeezes budgets, many seniors find Social Security benefits insufficient to cover daily expenses. For some, this means returning to work, even while receiving Social Security payments. However, working while on Social Security can affect your benefits, particularly if you have not yet reached Full Retirement Age (FRA).
Here’s a guide to know how earnings influence your benefits, what counts as income, and what does not.
What Counts as Earnings?
The Social Security Administration (SSA) calculates your earnings based on specific income types. If you are employed, only your wages are counted. For those who are self-employed, the SSA considers net earnings after business expenses.
Additionally, SSA includes the following when determining your total earnings:
- Vacation Pay: Any payment received for unused vacation time.
- Bonuses: Extra income provided for performance or other reasons.
- Commissions: Income earned through sales or deals closed.
Test Calculator
The SSA uses a Retirement Earnings Test Calculator to assess how much your benefits will be reduced if your income exceeds the earnings limit. While exceeding these limits can lead to a temporary reduction in benefits, the work you do and the Social Security taxes you pay may eventually lead to an increase in your monthly benefits.
What Does Not Count as Earnings?
Not all sources of income are factored into the SSA’s calculations. The following types of income are excluded from earnings:
- Pensions and Annuities: Regular payments from retirement plans or private pensions.
- Investment Income: Gains from stocks, dividends, or real estate investments.
- Interest: Earnings from savings accounts or fixed deposits.
- Veteran Benefits: Payments received for service in the armed forces.
- Government and Military Retirement Benefits: Payments from federal or state retirement plans or military pensions.
These exclusions mean you can still receive income from these sources without affecting your Social Security benefits.
Reporting Changes
If you’re receiving Social Security benefits and working, reporting changes in your earnings is crucial—especially if you are under FRA. This ensures your benefit calculations remain accurate and helps you avoid overpayments or unexpected reductions.
Steps to Report Changes
If your earnings differ from what you initially expected, you can notify the SSA by:
- Calling SSA: Dial 1-800-772-1213 (TTY: 1-800-325-0778) from Monday to Friday, 8:00 a.m. to 7:00 p.m.
- Providing Accurate Information: Include all sources of reportable income, including wages, vacation pay, and commissions.
Earnings Limits
The impact of your work earnings on Social Security benefits depends on whether you’ve reached FRA:
- Before FRA: Earnings exceeding the annual limit result in a temporary reduction in benefits.
- After FRA: There are no limits on how much you can earn without affecting your benefits.
While benefits are reduced if you exceed earnings limits before FRA, the SSA recalculates your benefit amount once you reach FRA, potentially increasing your monthly payments to reflect your work history and contributions.
Benefits of Reporting
Despite reductions for exceeding earnings limits, working while receiving Social Security benefits can have long-term advantages. Paying Social Security taxes on your income may boost your overall benefit amount, providing greater financial stability in the future.
Retirees considering work should weigh these trade-offs carefully and use tools like the SSA’s earnings calculators to plan effectively. By addressing what counts as earnings and how reporting changes can affect your benefits, you can make informed decisions about balancing work and Social Security.
FAQs
What counts as Social Security earnings?
Wages, net earnings, bonuses, commissions, and vacation pay count.
What is excluded from Social Security earnings?
Pensions, investments, interest, and veteran benefits are excluded.
How do I report earnings changes to SSA?
Call 1-800-772-1213 to update your income information.
Do earnings affect Social Security after FRA?
No, there are no earnings limits after reaching Full Retirement Age.
Can working increase Social Security benefits?
Yes, continued work and tax contributions may raise your payments.
