Factor 6: Continued Work While Collecting Benefits

Many retirees choose to work part-time or consult after claiming Social Security. If you have already reached your Full Retirement Age, you can earn an unlimited amount of money with zero impact on your monthly check. However, if you claim benefits early and continue working, you run straight into the Retirement Earnings Test.

The Earnings Test imposes strict limits on your wages. In the years prior to your FRA, the Social Security Administration will withhold $1 in benefits for every $2 you earn above an annual threshold. In the calendar year you reach your FRA, the threshold is much higher, and the penalty shifts to $1 withheld for every $3 earned above the limit. Once your birthday month arrives and you hit your FRA, the earnings test disappears entirely.

People often misunderstand this withholding as a permanent tax or penalty. It is actually a temporary deferral. When you reach your FRA, the Social Security Administration recalculates your benefit upward to account for the months they withheld your checks. While you eventually get the money back in the form of a higher monthly payment over time, having your checks unexpectedly halted during your early sixties can severely disrupt your cash flow.