Millions of Americans await the day when they can claim their Social Security benefits and start enjoying the retirement income from this benefits program to which they have contributed throughout their career.
These checks from the Social Security Administration are often an important source of income for older Americans, providing at least half of the family income for 50% of elderly couples and 70% of unmarried retirees.
Unfortunately, nearly three-quarters of Americans are making plans that could lead to the loss of at least some Social Security benefits in retirement – even if only temporarily.
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Are you at risk of losing some retirement benefits?
Americans preparing for retirement may not be aware that an important choice they are making could lead to a reduction in their future Social Security checks. That choice is the decision to keep a job in old age.
According to a survey by the SimplyWise retirement counseling website, 74% of current workers intend to continue working even after applying for Social Security benefits. And that can have financial consequences.
Each Social Security beneficiary has a full retirement age (FRA). Depending on when you were born, it can be in 66 and 2 months or 67.
Once you get to the FRA, you can work as much as you like. You will still retain all your benefits.
But if you apply for benefits before your FRA and work while you receive them, you are subject to a retirement income test. According to this test, when your income exceeds a certain limit, part of the Social Security money is withheld. Specifically:
- If you are under the FRA throughout the year, you will lose $ 1 for every $ 2 you earn in $ 18,960, starting in 2021 (this limit increases each year).
- If you are under the FRA for only part of the year, you will lose $ 1 for every $ 3 earned in $ 50,520 (again, starting in 2021).
If you lose some benefits, the money will not necessarily be forever. When you reach full retirement age, the Social Security Administration recalculates your benefit and increases your check based on the income you have lost. But, due to the method used to do this, it takes many years to clear checks that you didn’t receive at the time. And there is a chance that you will not live long enough for that to happen.
This does not mean that you should not be working while receiving benefits. In fact, there are substantial advantages to continuing to receive retirement income, if possible. But that means that you can’t necessarily count on receiving a paycheck and your full benefit check to help you survive the first few years of your retirement.
If you plan to work after claiming benefits because you think you will need both Social Security and a paycheck to survive as a retiree, you need to rethink your plans about where your income comes from. This probably means increasing your savings to cover the deficit that could result from the loss of retirement benefits due to income testing.