The Affect of Earnings on Your Social Security Benefit

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Your wage earnings and other income can impact your Social Security benefit in several ways. These earnings can increase the amount of your Social Security benefit that is taxable. In some cases, continued earnings can increase your future benefit rate as well. Wage earnings while collecting benefits can also reduce your current benefit if you’re over the annual earnings limits and you’re under Full Retirement Age. Continued wage earnings at or above the substantial earnings limits can also result in a smaller WEP reduction, or perhaps eliminate WEP altogether.

Taxation

Depending on your level of income, Social Security benefits may be included at as high as an 85% rate with your other taxable income on your tax return. But this level can range to as little as 0% if your provisional income (all of your other income besides Social Security benefits plus 1/2 of your Social Security benefit) is low enough.

For more details on how this works, check out this article on taxation of Social Security benefits.

Increasing future benefits

When you continue to work, depending on your wage income (or net self employment income), you may be increasing your future benefits. This happens when you have relatively low income reported in some earlier years (or perhaps zero income) and those low or zero years are included in your top-35 years of indexed earnings on record with Social Security.

To see how your benefit might increase, here’s an article about the calculation of the Average Indexed Monthly Earnings (AIME), which is used then to produce your Primary Insurance Amount (PIA) – a critical figure in determining your Social Security benefit amount.

Reducing current benefits

What happens if you are earning a significant amount of money (more than the limits) and you decide to go ahead and begin receiving your benefit before Full Retirement Age (FRA)?

When you’re under FRA, wage earnings greater than the limits will result in a $1 for $2 over the limit reduction to your annual benefits. Eventually at FRA you’ll get credit for those withheld benefits, but in the meantime your benefit is reduced by the over-earnings.

If you’re already at or older than FRA, you have no limit on your earnings, either as an employee or as a self-employed individual.  Your earnings have no negative impact on your Social Security retirement benefit, although if your earnings are significant and more than some of your earlier earnings years, your future benefits could possibly increase as mentioned above. In addition, any benefits that your dependents or spouse may be receiving that are based upon your record are also not impacted by your earnings at this stage.

Smaller or eliminated WEP reduction

If your earnings from SS-covered wages are at or above the substantial earnings limits, you can gradually eliminate the impact of WEP reduction on your benefits. Once you have 20 or more years of these substantial earnings, WEP’s impact begins to shrink with each added year of substantial earnings. When you reach 30 years of substantial earnings covered by Social Security, WEP is effectively eliminated for you.

For more on how this works, see this article on substantial earnings with regard to WEP.