Millions of Americans rely on Social Security benefits in retirement, but what if you’re still able and willing to work? While continuing to earn a paycheck may boost your long-term financial security, there are some key things to understand before mixing work with Social Security benefits. It’s a strategy that can help or hurt depending on your age, income, and awareness of the rules.
Here’s a breakdown of the major advantage and a significant downside to consider before making your next move.
Why Working Can Be a Smart Move
If you decide to work while collecting Social Security, you could end up increasing your future monthly benefit permanently. That’s because the Social Security Administration (SSA) uses your highest 35 years of earnings to calculate your benefit amount. If your current job pays more than some of your past years, the SSA will automatically replace those lower-earning years with your new higher wages in their formula.
This could mean a bump in your monthly checks, even after you’ve started claiming benefits. It’s one of the least-known advantages of staying in the workforce after retirement age.
Additionally, if you start receiving benefits before reaching full retirement age (FRA) and some of your benefits are withheld due to earning above the limit (more on that below), the SSA will adjust your future payments once you reach FRA. That means the money isn’t lost — it just comes later, in the form of higher monthly payouts.
But There’s a Catch: Earnings Limits Can Cut Your Checks
Here’s where things get tricky. If you’re below your full retirement age — which is currently 66 or 67, depending on the year you were born — and you earn over a certain threshold, your benefits could be temporarily reduced.
In 2025, the earnings limit is $23,400. For every $2 you earn over this amount, the SSA will withhold $1 from your benefits.
Let’s say you earn $33,400 in a year while also collecting Social Security. That’s $10,000 over the limit, so the SSA will withhold $5,000 from your annual benefit payments.
However, once you hit your full retirement age, these reductions no longer apply, and your benefits will be recalculated to give you credit for the months where you received reduced or no payments.
The Tax Side You Can’t Ignore
Another potential downside? Taxes. Working while receiving Social Security can bump up your income, which may push more of your benefits into the taxable zone.
Social Security benefits become taxable when your combined income (your adjusted gross income + nontaxable interest + half of your Social Security benefits) exceeds:
- $25,000 for individuals
- $32,000 for married couples filing jointly
If your income crosses these lines, up to 85% of your Social Security benefits could be subject to federal income tax.
That means your extra earnings might not go as far as you expect once Uncle Sam takes a cut.
What About Medicare Premiums?
Don’t forget: higher income can also affect what you pay for Medicare. If your income exceeds certain thresholds, your Medicare Part B and Part D premiums may increase due to Income-Related Monthly Adjustment Amounts (IRMAA). These surcharges can significantly increase your healthcare costs in retirement, and they’re often overlooked by those who decide to work part-time or full-time while on benefits.
How to Make It Work in Your Favor
- Understand Your Full Retirement Age (FRA)
Know your exact FRA so you can plan when to start benefits and how much you can safely earn without reductions. This varies based on your birth year and can be checked easily at SSA.gov. - Calculate Before You Commit
If you’re under FRA and planning to earn above the limit, run the math on how much will be withheld and whether it makes sense in your situation. Some retirees delay claiming until FRA or later to avoid reductions and maximize benefits. - Plan for Taxes
Consider working with a tax professional to see how your earnings might affect your tax liability and Medicare premiums. - Track Your Earnings
Make sure your employer correctly reports your income to the SSA so your benefit recalculations can happen accurately and without delays.
Conclusion
Working while receiving Social Security benefits can be a financially smart decision — but only if you understand the rules. The extra income can lead to a bigger monthly check down the line and offer long-term financial flexibility. But failing to plan could mean reduced benefits and unexpected tax bills.
