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If you’re planning to continue working well into your senior years, you’re not alone. Around 49% of baby boomers say they expect to keep working into their 70s or never retire at all, according to a 2023 report from the Transamerica Center for Retirement Studies.

In some cases, though, working after you’ve started collecting Social Security could reduce your benefits. To avoid any surprises, then, it’s important to know how your career plans will affect your monthly checks.

How your work will affect Social Security

If you’re still earning income from a job after filing for Social Security, your wages will be subject to the annual earnings test. This is essentially an income limit to determine how much of your benefits will be deducted based on your earnings.

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The earnings test limits change from year to year to account for inflation, and there are two different limits depending on your age.

If you haven’t yet reached your full retirement age (FRA) — which is age 67 for anyone born in 1960 or later — the limit is $21,240 per year in 2023. For every $2 you earn above that limit, your benefits will be reduced by $1.

If you will reach your FRA this year, there’s a different limit of $56,520 per year. During the months leading up to your FRA, your benefits will be reduced by $1 for every $3 you earn above this limit.

The earnings limit in action

Social Security’s earnings test can be confusing, but it’s often easier to understand through examples.

Say, for instance, you have an FRA of age 67, and you’re currently 62 years old and collecting Social Security. Let’s also say you’re earning $40,000 per year at your job.

In this case, you won’t be reaching your FRA this year, so your income will be subject to the $21,240 annual earnings limit. Your wages surpass this limit by $18,760, so your benefits will be reduced by $9,380 per year — or around $782 per month.

In a separate scenario, let’s say that you will reach your FRA this year. Now you’re subject to the other limit of $56,520 per year, and because your $40,000 income is below this limit, your benefits won’t be reduced at all.

Depending on how much you’re earning, it is possible to have your entire benefit amount withheld if your income is far enough above the limit.

The good news about working while on Social Security

It can be discouraging to have your benefits reduced because of your income, especially if you need the extra cash. But the good news is that these reductions are only temporary.

Once you reach your FRA, the Social Security Administration will recalculate your benefit amount to account for the money that was withheld. From then on, you’ll receive larger checks to make up for the deductions.

Also, after your FRA, any income you earn will not be subject to the earnings test. In other words, your benefits will not be reduced no matter how much you’re earning.

Social Security can be confusing, especially when it comes to working while collecting benefits. However, the earnings test can have a dramatic effect on your monthly payments. The more you know now about how your income will impact your benefits, the more prepared you’ll be.

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