Social Security is a cornerstone of retirement planning for many Americans, providing financial support during retirement years.
However, the amount you can earn from Social Security depends on several factors, including your retirement age, income, and when you decide to start claiming benefits.
Let’s break down how much you can earn and draw on Social Security while also exploring how your work history and earnings influence your benefits.
A Brief Overview of Social Security
Social Security, signed into law by President Franklin D. Roosevelt in 1935, provides retirement, disability, and survivor benefits.
It’s a crucial part of retirement planning for millions of Americans. In 2024, for example, the average monthly benefit for a retired worker will be $1,907 (about $23,000 annually), and the maximum monthly benefit for someone retiring at full retirement age is $3,822.
While Social Security is designed to supplement your retirement income, financial advisors like Diana Pringle of Wealth Advisors of the Great Lakes emphasize that it should not be your sole source of income.
“Social Security was designed as part of a three-legged stool: Social Security, personal pensions, and individual savings,” she says.
Collecting Social Security While Working
Yes, you can collect Social Security and continue working, but certain rules apply depending on your age and earnings.
Full Retirement Age (FRA)
Your full retirement age (FRA) depends on your birth year:
- 66 if born between 1943 and 1954.
- Between 66 and 67 if born between 1955 and 1959.
- 67 if born in 1960 or later.
Earning Limits Before Full Retirement Age
If you haven’t yet reached full retirement age and are still working, Social Security sets earning limits that determine whether your benefits will be reduced. For 2024, the annual earning limit is $22,320.
If you exceed this amount, the SSA deducts $1 from your benefits for every $2 you earn above the limit.
Example:
If Jamal is 63, earning $50,000 per year while receiving Social Security benefits:
- He exceeds the $22,320 limit by $27,680.
- The SSA deducts $1 for every $2 earned over the limit, so $13,840 will be withheld from his annual benefits.
- This equals about $1,153.33 deducted per month from his Social Security payments.
Full Retirement Age and After
Once you reach your full retirement age, there is no limit on how much you can earn while collecting Social Security. You’ll receive your full benefit without any reduction.
Delayed Retirement Credits
If you delay claiming benefits past your FRA, you’ll earn delayed retirement credits. Your benefits increase by 8% for each year you delay taking Social Security, up until age 70. This means waiting to claim benefits until age 70 maximizes your monthly payments.
Age and Benefit Reductions
- If you claim Social Security at age 62 (the earliest possible age), your benefits are reduced by 30% if you were born in 1960 or later.
- If you delay claiming benefits until age 70, you’ll receive 132% of your full retirement benefit.
How Work History Affects Your Social Security
To qualify for Social Security, you must accumulate 40 credits, typically by working for 10 years. You can earn a maximum of four credits per year, and in 2024, you’ll earn one credit for every $1,730 in earnings.
Your Social Security benefit is calculated based on your highest 35 earning years. If you haven’t worked for 35 years, zeros will be added to your calculation, which can lower your benefits.
Higher lifetime earnings result in higher benefits, up to the maximum taxable income of $168,600 in 2024.
Maximum Social Security Benefits
How much you can earn and draw from Social Security depends largely on when you start claiming benefits and your lifetime earnings. Here’s a breakdown of the maximum benefits for 2024:
- Age 62: The maximum benefit is $2,710 per month.
- Full Retirement Age (67): The maximum benefit is $3,822 per month.
- Age 70: The maximum benefit is $4,873 per month.
These amounts reflect the highest possible monthly payments for people who have earned the maximum taxable income throughout their working years.
Key Factors Affecting Social Security Benefits
Several other factors influence how much you can receive from Social Security, including:
1. Continued Employment
Working beyond full retirement age can boost your Social Security benefits, especially if your earnings in later years replace lower-earning years in the SSA’s 35-year calculation.
2. Medicare Deductions
Once you enroll in Medicare, premiums for Medicare Part B and Part D can be deducted from your Social Security benefits.
3. Taxes on Benefits
Depending on your combined income (including Social Security and other income), a portion of your benefits may be subject to federal income tax.
If you file as an individual and your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxed. If your combined income exceeds $34,000, up to 85% of your benefits may be taxable.
4. Cost-of-Living Adjustments (COLAs)
Social Security benefits are adjusted annually for inflation through cost-of-living adjustments (COLAs). In 2024, Social Security benefits will increase by 3.2%, ensuring they keep up with the rising cost of living.
How to Maximize Your Social Security Benefits
To maximize your Social Security benefits, consider the following strategies:
- Delay claiming: Waiting until age 70 will maximize your monthly payments.
- Boost your earnings: Higher lifetime earnings mean higher benefits, especially if you work for more than 35 years.
- Minimize taxes: Plan ahead to reduce the taxes on your Social Security benefits by managing your total income.
- Check your SSA statement: Regularly review your Social Security statement to ensure your earnings are accurately reported, as errors can reduce your benefits.
How much you can earn and draw on Social Security depends on your age, income, and work history. Understanding these factors and strategically planning when to claim benefits can help you maximize your retirement income.
While Social Security is a vital piece of the retirement puzzle, it’s essential to view it as one part of a broader retirement strategy that includes savings, pensions, and other income sources.
FAQs
Can I work and receive Social Security benefits at the same time?
Yes, but if you are under full retirement age and earn more than $22,320 in 2024, your benefits will be reduced.
How much is the maximum Social Security benefit in 2024?
The maximum benefit in 2024 is $4,873 per month if you wait until age 70 to claim.
When should I claim Social Security to maximize my benefits?
Waiting until age 70 maximizes your benefits, increasing your payment by 8% for each year you delay after full retirement age.
How are Social Security benefits calculated?
Benefits are based on your highest 35 earning years and are adjusted for inflation. Your full retirement age and when you claim benefits also affect the amount.
Is Social Security income taxable?
Yes, a portion of your Social Security benefits may be taxable, depending on your combined income and tax filing status.