Personal Finance

If you’re ‘unretiring,’ review your Social Security benefits. There’s a ‘surprise that people want to avoid’

Key Points
  • With prices at record highs, and job openings still abundant, returning to work after retirement may be a tempting way to boost your income.
  • If you're already collecting Social Security retirement benefits, there are a few things you may want to know first.
Viktorcvetkovic | E+ | Getty Images

A combination of high inflation and plentiful job openings may tempt some retirees into rejoining the workforce.

But if you're thinking about working, either part time or full time, and you're already collecting Social Security retirement benefits, there are a few things you may want to know first.

Social Security beneficiaries who go back to work may stand to earn more in the short term and also may eventually increase their monthly benefit checks, according to Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.

But they could also be subject to short-term benefit changes that are worth planning for. "That's the surprise that people want to avoid, is not knowing the earnings test is going to happen and that they're going to have a penalty," Elsasser said.

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Here are a few things to know about your Social Security benefits before unretiring.

1. Your benefits may be reduced temporarily

If you are over your full retirement age, there is no earnings penalty if you return to work.

"They can make as much as they want and be able to collect Social Security checks," Elsasser said.

Full retirement age is 66 to 67, depending on your year of birth. The Social Security Administration's retirement age calculator can help you find out the age at which you will reach eligibility for full benefits.

"In the calendar year you reach full retirement age, you really have a lot more flexibility for working and having earned income, and the penalty is less, too," Elsasser said.

Even though benefits are reduced for the earnings penalty, those who return to work still stand to make more in the short term, as well as later on when their benefits are increased.

2. You could get a bigger benefit check later on

If you are subject to the earnings penalty, your benefit will be recalculated later on, and that could mean a bigger monthly check.

Take someone who has a $2,000 Social Security check, who went back to work and earned $40,000. Based on the earnings penalty, they may not get a Social Security check for the first five months of the year, according to Elsasser, but in the remaining months, they would receive their $2,000 benefit.

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Once that worker reaches full retirement age, the SSA counts up the months they did not receive benefit checks due to the earnings penalty. Then, it will adjust the worker's benefits as if they had claimed later to account for that time.

Ultimately, their benefits are increased as if they had delayed benefits, Elsasser said.

"That's the important thing to remember: It's not a tax," Elsasser said of the earnings penalty. "Benefits are not lost; your benefit is recalculated when you reach full retirement age."

3. Tell Social Security about your return to work

If you plan to return to work, you should notify the SSA right away, Elsasser advised. That way, the agency can start to reduce your checks now.

If you don't, you could be in for an unwelcome surprise early the next year when the IRS reports your earnings to the SSA.

If that happens, you may get an unexpected letter from the SSA notifying you that they are stopping your benefit right away until any earnings penalty from the prior year is made up.

That may disrupt your cash flow, which you may not be expecting.

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