How Work Affects Your Benefits

If you plan on receiving your Social Security benefits beginning at age 62 and think you may continue to work while receiving them, your earnings could reduce your benefits. If you earn above a set limit, you lose one dollar in Social Security benefits for every two dollars over the limit. The limit changes with the cost of living, but in 2007 it is $12,960. Let’s look at an example of how this plays out: 

Lynn turned 62 in January and signed up for Social Security early retirement benefits. She began receiving $800 a month. 

However, Lynn kept on working, and her total income from her job will be $20,480 this year. This puts Lynn over the $12,960 earnings limit by $7,500. She loses one dollar for every two dollars over the limit, so in her case Lynn will lose $3,750 in benefits this year. This drops her monthly benefit down to $490 from $800. In the year you reach full retirement age, your benefit will be cut by one dollar for every three dollars over the earnings limit. But in the years after that, your benefit is no longer reduced due to earnings. If you start collecting benefits and continue to work beyond full retirement age, your benefit may be higher in the future. Additionally, if your latest years of earnings turn out to be among your highest, your benefits will be adjusted upward to reflect those higher earning years.