Planning for Earned Income in Retirement

Posted by Busey Bank on Feb 27, 2024 9:30:00 AM
Busey Bank

If you're like a lot of people, retirement won't be the world of gardening, golfing, traveling and tennis you once envisioned. Rather, retirement will mean relaxing—and working. Maybe you've retired from your "regular" job and started a business, or perhaps you want to work part-time just to stay busy. While counting on this extra income may not be a prudent strategy, if you work after you start receiving Social Security retirement benefits, your earnings may affect the amount of your benefit.

An older man and woman sit on a couch with a younger man. The older man is signing a piece of paper.

How do your earnings affect your benefit?

Your earnings in retirement may increase your retirement benefit
Your monthly Social Security retirement benefit is based on your lifetime earnings. When you become entitled to retirement benefits at age 62, the Social Security Administration (SSA) calculates your primary insurance amount (PIA) upon which your retirement benefit will be based. Later, your PIA will be recalculated annually if you have had any new earnings that might substantially increase your benefit. So, if you continue to work after you start receiving retirement benefits, these earnings may eventually increase your PIA and thus your retirement benefit.

Your earnings in retirement may decrease your retirement benefit
If you earn income over a certain limit by working after you begin receiving retirement benefits, your benefit may be reduced. This limit, known as the retirement earnings test exempt amount, affects only beneficiaries under full retirement age (FRA).

If your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the SSA recalculates your benefit when you reach FRA and omits the months in which your benefit was reduced.

How much is the retirement earnings test exempt amount?

In 2024, the annual exempt amount is $22,320 for beneficiaries under FRA. However, in the year you reach FRA, a different limit applies. The earnings limit in 2024 is $59,520, which applies to earnings up to, but not including, the month you reach full retirement age.

How much benefit is withheld if you exceed the annual earnings limit?

If you're under FRA, $1 in Social Security benefits is withheld for every $2 of earnings in excess of the annual limit.

In the year you reach full retirement age, $1 in benefits is withheld for every $3 of earnings in excess of the limit that applies that year. This only counts money earned before the month you reach FRA.

What kinds of earnings may affect your benefit if you are not FRA?

Earnings are typically types of income you are actually performing a service to receive.

Earnings that might reduce your benefit

  • Wages you earned as an employee (in the taxable year they're earned)
  • Net earnings from self-employment (in the year they’re received)
  • Other types of work-related income, such as bonuses and commissions

Income that won't reduce your benefitPensions

  • Workers' compensation and unemployment compensation benefits
  • Prize winnings from contests, unless part of a salesperson's wage structure, or entering contests is your "business"
  • Payments from retirement accounts
  • Investment income
  • Income earned in or after the month you reach FRA

Other types of earnings may affect your benefit. If you have additional questions about how the Social Security Administration (SSA) defines earnings, contact the SSA directly.

Which of your benefits may be affected by excess earnings if you are not FRA?

Your own retirement benefit
Your Social Security retirement benefit may be reduced if you earn income over the retirement earnings test exempt amount.

Benefits paid to your spouse or child
If you have retired and your spouse and/or child receives benefits based on your Social Security record, any excess earnings you have may reduce their benefits. In addition, any excess earnings they have may reduce their own benefits but not your benefit.

Benefits paid to your survivors
If you die and a member of your family receives a survivor's benefit, that benefit may be reduced if the family member earns money in excess of the retirement test exempt amount.

Is the earnings test different in the first year of retirement?

Earnings from an employer
In the first year of retirement, the earnings test is applied differently than in later years. Normally, the earnings test is based on the amount of income you earned annually; however, in the first year of retirement, the earnings test can be based on the amount of income you earned monthly, if that would benefit you. You can receive a full Social Security     benefit check for any whole month in which your earnings don't exceed 1/12th of the annual exempt amount.

Earnings from self-employment
If you're self-employed, the SSA also considers whether you perform substantial services in your business. You will receive full benefits for any month you're not substantially self-employed. In general, you're considered to be substantially self-employed if you devoted more than 45 hours in one month to your business. The general test also states if you devote less than 15 hours in one month, you will not be considered substantially self-employed.

If you receive Social Security retirement benefits based on your ex-spouse's Social Security earnings record, will your benefit be reduced if your ex-spouse works after retirement and earns more than the exempt amount?

No. If you've been divorced for more than two years, your benefits will not be reduced if your ex-spouse has excess earnings. The only way your benefit will be reduced is if you have excess earnings.

How does the SSA know how much you earn after you begin collecting retirement benefits?

The SSA knows how much you earn because you are required to estimate your earnings when you apply for Social Security benefits. Later, the SSA will get information about your earnings from your IRS W-2 form (submitted annually by your employer) or, if you are self-employed, from your annual income tax return. The SSA also may ask you to send an earnings estimate annually. In addition, if you think the earnings used to calculate your benefit may be incorrect, contact the SSA so that your benefit can be accurately calculated.

As you plan for the future, it’s important to have someone you can rely on for trusted advice and tailored solutions. To learn more about Busey Wealth Management, visit


This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

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