Should You Work and Collect Social Security?

People commonly take Social Security only after they've retired, but life isn't always that neat. Financial pressures or unforeseen events — like, say, a pandemic — may lead you either to claim benefits while you're still working or to return to work after you've begun collecting.

That's when you could encounter the Social Security earnings test: a confusing policy that can temporarily reduce your monthly benefit. Here are answers to questions you're likely to have about the test's complex rules.

Am I subject to the earnings test?

If you are at least 66 years and 2 months old, the top threshold currently in effect for Social Security's full retirement age, the answer is no. But if you are working and are below this full retirement age, the test can affect whatever Social Security benefits you receive, including spousal, survivor or disability benefits.

What's the test's impact?

The test determines how much your benefits will be cut, based on your total earnings. If you earn the exempted amount — $18,960 in 2021 — or less, there's no reduction. But if this isn't the year in which you reach your full retirement age, your benefits are reduced by half the amount that your earnings exceed that annual limit. For example, say you're earning $30,000 a year, or $11,040 over this year's earned income limit. Your annual benefits would then be reduced by half that amount, or $5,520. (Cuts are lower in the year you reach your full retirement age.)

How does Social Security carry this out?

The agency suspends monthly payments until the money withheld covers the amount the benefit has been lowered. In this example of a $5,520 reduction, let's assume your benefit is $1,000 a month. That would mean you wouldn't receive your first six monthly checks, or $6,000, says William Reichenstein, head of research at software and consulting company Social Security Solutions. Social Security would later send you the amount overwithheld, or $480.

It's possible all of your benefits for a year might be withheld — say, if you collected for two years, then got a job paying so well that the benefit reduction formula canceled out your payments. How well would the job have to pay? Double your annual Social Security benefit, then add in that year's earned income limit. So if you were due $12,000 from Social Security in 2021, the cutoff would be $42,960 — the sum of $24,000 (twice your benefits) and $18,960.