Claiming Social Security While You Are Working 

Written by Canty Financial - Published on August 17, 2023

A question we are often asked is whether or not you can claim Social Security while working. The answer to this question is yes you can. However, it’s not that simple. The question to ask is should you claim Social Security while working? In answering this question it's important to understand the rules regarding earned income, taxes, and your Social Security benefits. 

Key ages for claiming Social Security benefits 

There are some key ages to keep in mind in connection with claiming Social Security benefits: 

  • Age 62 is the earliest most people can claim their benefits. It is also the age that will yield the lowest benefit level for you.
  • FRA or full retirement age is the age at which you are eligible to receive your full retirement benefit. FRA is 66 for those born between 1943 and 1954. After that it increases by two months for every year until it currently caps out at age 67 for those born in 1960 or later.
  • Age 70 is the point at which your benefit maxes out, claiming later than this will not increase your benefit level. 

Social Security and working 

For those who are working, drawing Social Security benefits and who have not reached their FRA, there is a benefit reduction if your earned income exceeds $21,240 for 2023. In these cases, there will be a $1 benefit reduction for every $2 that your earned income exceeds these limits. Earned income is defined as income from employment or self-employment. This does not include income from sources like interest or investment gains. 

For those working in the year in which they attain their FRA, the earnings limits increase to $56,520 for 2023. In this case, there is a $1 benefit reduction for every $3 in earned income above these limits. 

There are no limits on your level of earned income, and no benefit reductions once you have reached your FRA. Note that any withheld benefits are returned to you in the form of a higher monthly payment once you reach your FRA. Even with this, it probably doesn’t make sense to claim your benefit prior to your FRA if you know that all or most of the benefit will be lost due to your level of earned income. 

One issue that may confuse some people is the Social Security COLA or cost of living adjustment. The COLA for 2023 is 8.7%. If you defer claiming your benefit you do not lose out on this COLA, it simply will be factored into your benefit when you do claim in the future.

A one-time do over

There is a once per lifetime do-over option once you have claimed your Social Security benefits. Let’s say you decided to totally retire at age 62. Since you had no plans to ever work again you decided to claim your Social Security benefits. 

Nine months later, you realized that you were bored and decided to work with a consulting firm that serves companies in your former industry. Your compensation will be $75,000 which is well above the Social Security earnings limit. 

You have the option to withdraw your application. This is a once per lifetime opportunity and must be done within a year after you initially claimed your benefits. Withdrawing the application allows you to reapply later when you are no longer working or you reach the age at which your benefit will no longer be impacted by the level of your earned income. 

When doing this, all benefits received by you plus anyone else who received benefits based on your retirement application must be repaid. Additionally, these benefit recipients who are impacted must consent to this application withdrawal in writing. 

Social Security and taxes 

Social Security benefits can be subject to federal income taxes based on your combined income, which the Social Security Administration defines as: 

Adjusted gross income (AGI) plus nontaxable interest income plus ½ of your Social Security benefits. 

For those filing as single: 

  • If your combined income is between $25,000 and $34,000 up to 50% of your benefit may be taxable.
  • If your combined income is more than $34,000 up to 85% of your benefit may be taxable. 

For those filing married and joint: 

  • If your combined income is between $32,000 and $44,000 up to 50% of your benefit may be taxable.
  • If your combined income is more than $44,000 up to 85% of your benefit may be taxable. 

Additionally, 12 states currently tax Social Security benefits in some fashion at the state level. 

If you are working your benefits will almost certainly be subject to income taxes. It's important to increase your withholding to cover these added taxes.

We help our clients determine the best time to claim their Social Security benefits based on their overall situation. If you are still working this is certainly a factor in this decision. For help in deciding when to claim Social Security and in all aspects of financial and retirement planning please feel free to reach out to us. As both financial and tax advisors we help our clients design tax-efficient retirement income strategies.

Bill Canty, CFP®, CPA, Financial Planner

Ed Canty, CFP®, Financial Planner

Joe Canty, Financial Planner

Maureen Walsh, EA, Tax Advisor

Tina Alteri, CPA, Tax Advisor

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