What You Need to Know: Maximum Earnings While Collecting Social Security in 2021

Have you been wondering how much money you can make without losing your Social Security benefits in 2021? Maybe you’re approaching retirement age but aren’t quite ready to stop working completely. Or perhaps you’ve already started collecting benefits but want to pick up a part-time job to supplement your income. Either way, understanding the earnings limits is crucial for maximizing your retirement income.

I’m excited to share what I’ve learned after hours of research on this subject. Don’t worry if the rules seem hard to understand; I’ll explain everything in plain English.

The Basic Rules for Working While Collecting Social Security

First things first Yes you absolutely can work and collect Social Security retirement benefits at the same time. This is a common misconception that many people have. The Social Security Administration (SSA) doesn’t prohibit you from working while receiving benefits.

One very important thing to keep in mind is that you can only earn so much before the SSA starts cutting your benefits. These rules are mostly based on your age, specifically on whether you’ve reached your “full retirement age” (FRA).

What is Full Retirement Age?

Your full retirement age depends on when you were born

• If you were born in 1955, your FRA is 66 and 2 months
• If you were born in 1956, your FRA is 66 and 4 months
• For people born in later years, the FRA gradually increases to 67 for those born in 1960 or later

This is important because the earnings limits are different depending on whether you’ve reached your full retirement age.

Earnings Limits for 2021

Today we’ll talk about the important part: the exact dollar amounts for 2021.

If You’re Under Full Retirement Age for the Entire Year

If you don’t reach full retirement age by the end of 2021, you can only make $18,960 a year, or $1,580 a month.

For every $2 you earn above this limit, the SSA will deduct $1 from your benefits.

For example, let’s say you’re 63 years old, receiving $1,200 per month in Social Security benefits, and you earn $22,960 from a part-time job. That’s $4,000 over the limit. The SSA would deduct $2,000 from your annual benefits ($1 for every $2 over the limit), which comes out to about $167 per month.

If You Reach Full Retirement Age During 2021

If you will reach your full retirement age during 2021, the rules are more generous. The earnings limit jumps to $50,520 per year (or $4,210 per month) for the months before you reach FRA.

And the penalty is lighter too – the SSA deducts $1 for every $3 you earn over the limit.

Let’s say you’ll turn 66 and 2 months (your FRA) in August 2021. From January through July, you earn $52,520. That’s $2,000 over the limit for those seven months. The SSA would deduct about $667 from your benefits for the year (roughly $95 per month for those 7 months).

Once You Reach Full Retirement Age

Now for the good news! Starting with the month you reach full retirement age, there is NO limit on how much you can earn while receiving your full Social Security benefits.

That’s right – once you hit that magic age, you can earn $30,000, $100,000, or even more per year, and the SSA won’t reduce your benefits at all.

What Counts as “Earnings”?

When calculating these limits, the SSA only counts certain types of income:

• Wages from employment
• Net earnings from self-employment

The SSA does NOT count these types of income toward the earnings limit:

• Pensions
• Annuities
• Investment income
• Interest
• Veterans benefits
• Government or military retirement benefits

This distinction is important because it means you could potentially have significant income from investments or pensions without affecting your Social Security benefits at all.

Working Could Actually Increase Your Benefits

Here’s something many people don’t realize: working while receiving Social Security can actually increase your benefits in the long run.

As long as you continue to work, you’ll continue to pay Social Security taxes on your earnings. The SSA checks your record every year to see if your additional earnings increase your monthly benefit. If your recent earnings are higher than some of the earnings used to calculate your benefit, your monthly payment might go up.

Examples to Make It Clearer

Let me give you a couple of examples to illustrate how this works in real life:

Example 1: Under Full Retirement Age

Mike is 62 and started receiving Social Security benefits of $1,500 per month in January 2021. He takes a part-time job that pays $25,000 for the year.

Since he’s earning $6,040 over the limit ($25,000 – $18,960), the SSA will withhold $3,020 ($1 for every $2 over). This means his benefits would be reduced by about $252 per month.

Example 2: Reaching Full Retirement Age During the Year

Sarah will turn 66 (her FRA) in July 2021. She receives $2,000 per month from Social Security. From January through June, she earns $52,000 from her job.

She’s $1,480 over the limit for those six months ($52,000 – $50,520). The SSA will withhold about $493 total ($1 for every $3 over), or roughly $82 per month for those six months.

After July, she can earn as much as she wants with no reduction in benefits!

Special Rule for the First Year of Retirement

There’s a special rule that applies to earnings during the first year you retire. If you retire mid-year and have already earned more than the annual limit, the SSA will still pay benefits for any month you’re “retired” and your monthly earnings are under a certain limit.

In 2021, they consider you retired if your monthly earnings are $1,580 or less (if you’re under full retirement age for the entire year).

What About Medicare?

Many people wonder if working affects Medicare eligibility. The good news is that your Medicare benefits are not affected by working or by the Social Security earnings test. You can work and receive Medicare benefits without any problems.

Tax Considerations

While not directly related to the earnings limit, it’s worth mentioning that working while receiving Social Security could potentially make some of your benefits taxable.

If your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits) exceeds certain thresholds, up to 85% of your benefits might be subject to federal income tax.

For 2021, those thresholds are:

• $25,000 to $34,000 for single filers (up to 50% of benefits may be taxable)
• More than $34,000 for single filers (up to 85% of benefits may be taxable)
• $32,000 to $44,000 for joint filers (up to 50% of benefits may be taxable)
• More than $44,000 for joint filers (up to 85% of benefits may be taxable)

Reporting Changes in Earnings

If you’re receiving benefits and your earnings will be different than what you originally told the SSA, you should let them know right away. You can’t report earnings changes online – you’ll need to call them at 1-800-772-1213 or contact your local Social Security office.

Working Outside the United States

There’s a different work test for beneficiaries working outside the United States. If you live outside the U.S., you should contact the Social Security Office of Earnings & International Operations for information specific to your country of residence.

Final Thoughts

Working while collecting Social Security can be a smart financial move, especially after you reach full retirement age. The key is understanding how the earnings limits work so you can plan accordingly.

Remember these key points for 2021:

• Under FRA all year: $18,960 annual limit
• Reaching FRA during the year: $50,520 limit for months before FRA
• At or after FRA: No earnings limit at all!

For many people, the best strategy is to work enough to supplement their Social Security without exceeding the limits. Or, if you’re able to earn significantly more than the limits, it might make sense to delay claiming benefits until you reach your full retirement age.

Everyone’s situation is different, though, and there’s no one-size-fits-all answer. It’s always a good idea to consult with a financial advisor who can help you make the best decision based on your personal circumstances.