Social Security retirement benefits and ‘unretirement’: what to know

A combination of high inflation and job opportunities may tempt some retirees to rejoin the workforce.

But whether you’re thinking about going back part-time or full-time, if you’re already collecting Social Security retirement benefits, there are a few things you might want to know first.

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

But they may also be subject to short-term benefit changes which is worth planning for. “That’s the surprise that people want to avoid, is not knowing that the earnings test is going to happen and that they’re going to get a fine,” Elsasser said.

Here are some things to know about your Social Security benefits before you retire.

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 figure out the age at which you are eligible for full benefits.

“In the calendar year that you reach full retirement age, you really have a lot more flexibility to work and to earn income, and the penalty is less as well,” Elsasser said.

Even if benefits are reduced for the earnings penalty, those who return to work will still earn more in the short term, as well as later when their benefits are increased.

If you’re subject to the earnings penalty, your benefit will be recalculated later 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, Elsasser said, they may not get a Social Security check for the first five months of the year, but in the remaining months they will receive their $2,000 benefit.

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Once that worker reaches full retirement age, the Social Security Administration adds up the months they didn’t receive benefit checks because of the earnings penalty. Then it will adjust the worker’s benefits as if they later claimed to account for that time.

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

“This is the most important thing to remember: It is not a tax,” Elsasser said of the earnings penalty. “Benefits are not lost; your benefit is recalculated when you reach full retirement age.”

If you plan to return to work, you should notify the Social Security Administration immediately, Elsasser advised. That way, the agency can start cutting your checks now.

If you don’t, you could get an unwelcome surprise early the next year when the IRS reports your earnings to the Social Security Administration.

If this happens, you may get an unexpected letter from the Social Security Administration notifying you that they will immediately stop your benefit until any earnings penalty from the previous year is made up.

This can disrupt your cash flow when you least expect it.