More Than Half of Americans Get This Wrong About Social Security Benefits

By John

Does working in retirement impact the size of your Social Security benefits?

A recent survey by the Massachusetts Mutual Life Insurance Co. found that 55% of respondents reported incorrectly that it didn't:

Continue Reading Below

In short, working in retirement does impact the size of your monthly benefits. But this doesn't mean you should necessarily avoid work after applying for Social Security. While doing so might decrease the size of your benefits in the short run, it could have the opposite effect over time.

The rules that govern the impact on Social Security benefits of working in retirement pivot around your full retirement age -- that is, the age at which you're eligible to receive your full slate of benefits based on your 35 highest-earning working years.

If you elect to receive benefits before reaching your full retirement age but continue working, your benefits will be reduced by $1 for every $2 you earn above $15,720 or $1 for every $3 you earn above $41,800.

Let's say, for instance, that Rob applies for Social Security benefits at age 62. Based on his history of earnings, and because he is taking benefits before reaching his full retirement age, Rob is entitled to $1,500 a month. Because this does not cover his bills, Rob also gets a part-time job that pays $25,000 a year. In this case, his annual benefits will be reduced by $4,640 in lieu of his earnings, which is equivalent to missing out on three monthly Social Security checks over the course of the year.

While this might seem unfair, there are two points to keep in mind. In the first case, working will only reduce your benefits if you haven't yet reached full retirement age. "If you work, and are full retirement age or older, you may keep all of your benefits no matter how much you earn," explains the SSA's pamphlet, How Work Affects Your Benefits.

In the second case, any benefits withheld as a consequence of working prior to full retirement are effectively recaptured once you reach that threshold. Here's the example the SSA uses to illustrate this point:

Thus, while it's wrong to say working in retirement has no impact on your Social Security benefits, particularly prior to reaching full retirement age, it's similarly wrong to conclude that the impact is entirely negative. Yes, your benefits could be reduced in the short run. But they won't be lost forever.

The article More Than Half of Americans Get This Wrong About Social Security Benefits originally appeared on

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.