When You Go Back to Work after Retirement
Copyright © 2018 by AARP. All rights reserved.
What if you retire, decide to start your Social Security retirement benefit, and then you go back to work? It’s easy to see how this could happen. Maybe you’re an older employee who was laid off. You apply for dozens of jobs and nothing comes through. The bills are adding up. You need some income, so you begin your early retirement Social Security benefit. A few months later, an employer offers you a good job. If the pay is high enough, earnings limit withholding could gobble up 100 percent of your benefit. A lot of good that would do you.
In such cases, the Social Security Administration (SSA) suspends your benefit if you haven’t yet reached your full retirement age. Payments are stopped until your income is low enough that you again qualify for payments. (If your income stays very high, your benefit can remain suspended until you reach your full retirement age.) At full retirement age, your benefit is recalculated so that, in the long run, you recoup the suspended amount.
Another option that you have within the first year of benefits is to withdraw them — in effect, to stop being a beneficiary. The downside of withdrawal is that you have to pay back whatever you received (as well as any benefits that went to others based on your earnings record). At one time, some experts recommended this strategy of terminating benefits and repaying them as a way to get an interest-free loan, while enabling your retirement benefit to get larger. The SSA has clamped down, however, and restricted such withdrawals to the first year of receiving benefits.
The SSA reduces your benefit by $1 for every $2 you earn above a certain amount, if you haven’t reached full retirement age. In the year you reach full retirement age, the SSA withholds $1 for every $3 earned over a (higher) limit. After you reach full retirement age, the earnings limit vanishes.
Consider this example: Antoine loses his job at 63, when the private security firm he helps manage goes belly up. He sends out dozens of job applications and doesn’t get a single reply. Finally, he gives up and begins collecting a Social Security retirement benefit amounting to $17,000 per year. Six months later, he’s amazed to pick up the phone and receive an offer from a former colleague to become vice president of a start-up security firm for $55,000. He says yes right away. But when Antoine calls the SSA office, he has a less pleasant surprise: The representative explains that Antoine’s entire benefit is suspended. The math works out like this: His new salary of $55,000 is $38,080 over the Social Security threshold of $16,920. Divide $38,080 by two, and you get $19,040 — more than $2,000 above his annual Social Security benefit of $17,000. As a result, the entire benefit for the year is withheld. The work suspension isn’t an entirely bad thing, though. Antoine can afford to live without Social Security. Meanwhile, as long as his retirement benefit is completely suspended, it grows at a rate of about 7 percent annually, until he reaches his full retirement age three years later, at 66.
Benefits are most commonly suspended because of high earnings, although there are other reasons. For example, say you qualify for benefits as a young parent or young widow or widower who is eligible because you care for a child. If the child isn’t under your care for a month — for example, because the child is living elsewhere and being cared for by a different parent — your benefits could be suspended. (A kid’s visit to summer camp or boarding school won’t disqualify you.) If you’re a spouse, widow, or widower who gets a government pension unrelated to Social Security, two-thirds of the pension may offset your Social Security benefits and could cause a suspension.