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Returning to Work after Retirement: Social Security Benefit Reduction?

When you go back to work after you retired early and already started collecting Social Security, you could end up with reduced benefits. It all depends on whether you've reached your full retirement age.

Understanding the Retired Earnings Test (RET) basics

If you decide to go back to work before full retirement age, but have already started collecting Social Security, your benefits will be temporarily reduced by the Retirement Earnings Test (RET). The designers of Social Security made this test a requirement because they believed people who went back to back work should not collect full benefits. Congress changed this rule in 2000. Today only people who retire before their full retirement age must pass this test.

For the purposes of the RET test, only wages that you earn by working outside the home or on a part-time basis from home count as income. You don't have to include any government or military benefits, investment earnings, interest, pensions, annuities, or capital gains when calculating income for a RET test.

Once you reach full retirement age, you can work as much as you like without impacting your Social Security benefits. There are no earning limitations once you reach full retirement age.

In changing the rules to allow you to regain your benefits lost because of the RET, Congress took the position in 2000 that Social Security is something that you earn by years of work and that these benefits should not be withheld from people who choose to go back to work for whatever reason once they reach their full retirement age.

Prior to this change in rules in 2000, 960,000 Social Security beneficiaries were working and had their benefits reduced by the RET. More than 800,000 of them had already reached their full retirement age. They lost a total of $4.1 billion in benefits because of RET rules.

Reviewing the rules

If you go back to work after you start collecting Social Security but before you reach full retirement age, your Social Security benefits will be reduced under two levels of RET rules:

  • People between ages 62 and the year they reach full retirement age will have $1 of benefits withheld by Social Security for every $2 earned in excess of their allowable earnings threshold. The allowable earnings threshold was $12,480 in 2006. This allowable earnings threshold is adjusted each year by Social Security based on a formula managed by Social Security called the national wage index. The new threshold information is released in the month of October, prior to the year it will be in force.
  • During the year you reach your full retirement, you will only have $1 of Social Security benefits withheld for every $3 earned above the allowable earnings threshold. The allowable earnings threshold was $33,240 for 2006 and will be adjusted each year by Social Security's national wage index.
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