Learn About Social Security Income Limits
What to Know About Working While Receiving Retirement Benefits
If you take Social Security benefits before you reach your full retirement age, and you earn an annual income in excess of the annual earnings limit for that year, your monthly Social Security benefit will be reduced for the remainder of the year in which you exceed the limit. If you will reach full retirement age during that same year, it will be reduced every month until you reach full retirement age.
Investment income does not count toward the annual earnings limit; the only income that counts is earned income—the income you earn by working either for someone or as a self-employed person.
How Much Can I Earn?
In 2020, the annual earnings limit for those achieving full retirement age in 2021 or later is $18,240. In 2019, the annual earnings limit for those achieving full retirement age in 2020 or later is $17,640. That means in 2019 you can earn up to $17,640 and receive your Social Security benefits even if you aren't yet at full retirement age. Full retirement age based on your year of birth use this calculator to determine yours.
If you earn over the limit, there are a set of rules that determine how much your Social Security benefits will be reduced. There are three different earnings limit rules that apply, depending on whether you earn the income before, during, or after the year your reach full retirement age.
Each option is covered below.
1. Income Earned Before the Year You Reach Full Retirement Age
If you are collecting Social Security benefits, and earn more than the annual earnings limit in a year in which you will not be reaching your full retirement age, Social Security will take back $1 of Social Security for every $2 over the limit. Ouch! This is a serious reduction.
This reduction applies to any year before you reach full retirement age, and it applies to income earned the entire year, even if you were not eligible for Social Security the entire year. So if you work a partial year, the income you earn before the month you start collecting Social Security benefits still counts toward the annual earnings limit. So if you work a partial year, the income you earn before the month you start collecting Social Security benefits does not count toward the annual earnings limit.
Sometimes Social Security website pages use the term "normal retirement age." It means the same thing as full retirement age (FRA).
2. Income Earned During the Year You Reach FRA
During the year you reach FRA, and up to the month you reach FRA, Social Security will deduct $1 for every $3 you earn that is over the annual earnings limit. For the year in which you will reach FRA, the earnings limit is different.
In 2020, the earnings limit is $48,600. If you reached FRA in 2019, you could earn up to $46,920 before having any pay deducted. During the year in which you reach FRA, Social Security only counts earnings that you receive before the month you reach FRA.
Example 1: Let's assume you were born in 1952, which means your FRA is age 66. You turn 66 in June 2019 and begin your Social Security benefits at that time, but you continue to work until the end of the year, and earn $44,000 for the year. Your benefits will not be reduced because you earned less than the $46,920 for the year.
The Social Security website provides additional examples of how this deduction works. You can also use the earnings test calculator, and plug in your date of birth and expected earnings to see if you think a reduction will apply to you.
3. Income Earned After You Reach FRA
Once you reach FRA, you are no longer subject to the annual earnings limit. You can earn as much as you like without incurring a reduction in your Social Security benefits! Your benefits may, however, still be subject to income taxes.
Best Way to Avoid the Earnings Limit
The best way to avoid the earnings limit is to wait until you reach FRA to begin your benefits. Understandably, some people have no choice and must start benefits because they are laid off and they have no other income or assets. If this happens to you, but later your situation changes and you go back to work, you can withdraw your application for Social Security within 12 months of starting benefits.
Other people, however, do have a choice; perhaps they could use some of their savings or retirement money to tide them over until they reach FRA. This may be a better option than starting Social Security early.
What Counts as Earnings?
Unemployment income does not count as earnings toward the earnings test above. If you are earning wages, income counts when it is earned, not when it is paid. The IRS provides additional details on what is and is not considered to be earned income.
Earnings Limit Is Indexed to Inflation
The earnings limit will adjust upward each year depending on the formal measure of inflation which is the Consumer Price Index. In the table below you see past years' limits for pre-FRA. In the years where it did not change inflation was quite low or negative.
Social Security Administration. "Exempt Amounts Under The Earnings Test." Accessed Dec. 18, 2019.
Social Security Administration. "Normal Retirement Age." Accessed Dec. 18, 2019.
Social Security Administration. "Benefits Planner: Retirement." Accessed Dec. 18, 2019.
IRS. "What Is Earned Income?" Accessed Dec. 18, 2019.