Are You Unretiring? Here Is What You Need To Know

Rising inflation and an abundance of job vacancies may entice some retirees to return to the labor market. However, if you’re currently receiving Social Security retirement benefits and you’re considering working, there are a few things you should consider first.

In the short term, Social Security recipients who return to the workforce may be able to earn more, and ultimately their monthly benefits may increase, according to Joe Elsasser, founder, and president of Covisum.

However, they may be prone to short-term benefit fluctuations that merit preparation. According to Elsasser, this is the surprise that individuals wish to avoid, not knowing that the earnings test will occur and that they would incur a penalty.

Before unretiring, you should know a few things about your Social Security payments.

  • Your benefits may be temporarily limited.
  • You won’t be penalized for your earnings if you return to work after reaching full retirement age.

Elsasser stated Retirees who have reached full retirement age may earn as much as they want and still get Social Security. There is no earning cap once you reach your full retirement age. 

Depending on your birth year, the full retirement age is 66 to 67. The Social Security Administration’s retirement age calculator will help determine when you will become eligible for full benefits.

In the year you reach full retirement age, you have much more freedom for working and earning money, and the penalty is also reduced, Elsasser explained.

Despite the reduction in benefits due to the earnings penalty, persons who return to work will earn more in the near term and the long run when their benefits are enhanced because of their employment.

You may receive a larger benefit check in the future.

Your benefits might be reassessed if you’re subject to the earnings penalty, which could lead to a larger monthly payment. Based on the earnings penalty, you may not get a monthly check from Social Security for the first five months, but you would receive your regular benefit for the remaining months.

Once a worker reaches full retirement age, the Social Security Administration (SSA) calculates the months in which they did not receive benefits due to the earnings penalty. Then, it will alter the employee’s benefits as if they had filed their claim later to account for the delay.

Elsasser stated that their benefits are ultimately raised as if they had delayed benefits.

According to Elsasser, the crucial thing to understand about the earnings penalty is that it is not a tax. Benefits are not lost; when you reach full retirement age, your benefit is adjusted.

Inform Social Security of your return to the workforce.

Elsasser suggested that the SSA be notified immediately if you want to return to work. Thus, the agency can immediately begin to lower your checks. If you don’t, you might be in for an unpleasant surprise when the IRS reports your wages to the SSA early the following year.

If this occurs, you may get a surprise notice from the SSA informing you that they immediately suspend your benefits until any earnings penalty from the previous year is paid. The penalty might disturb your financial flow if you weren’t expecting it.