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How much can you earn while on Social Security?

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Social Security is some retirees' only source of income, while others have additional income sources. In either case, Social Security benefits are considered taxable income. Here's how to know if you may owe income tax on a portion of your benefits and how much you might owe.

How much can you earn while on Social Security?

You can earn as much as you want while on Social Security.1 When people ask this question, they're usually asking how much they can earn before part of their Social Security income becomes taxable. This question is an important one. The answer might influence when you choose to claim Social Security and whether you pursue other ways to make money in retirement.

When is your full retirement age?

Your full retirement age is when you can claim Social Security and receive your full retirement benefit, and it depends on the year you were born. It ranges from age 66 for people born from 1943 through 1954 to age 67 for people born in 1960 or later. If you were born in 1956, your full retirement age is 66 and 4 months.

You can start claiming benefits as early as 62 or as late as 70. The Social Security Administration (SSA) decreases your benefit if you claim early and increases it if you claim late. When you file, your monthly benefit amount remains your monthly benefit for life, with some exceptions.

Say you were born in 1960 and decide to claim benefits at age 62.2 Your monthly retirement benefit could be reduced by 30% because you're claiming benefits five years before reaching full retirement age. If you could have received $1,500 per month by waiting until age 67, you may instead receive $1,050 per month for life. Your benefit may not increase to $1,500 when you turn 67.

What about claiming after full retirement age? For every year past age 67 that you wait to claim benefits (up to age 70), your monthly payment increases by 8%. If you don't claim until age 70, your monthly benefit could be 24% of $1,500, or $1,860. That's almost a quarter higher. But you may not receive any monthly payments until you're 70.

To decide when to claim, consider how long you think you may live, your other sources of income and taxes.

How are Social Security benefits taxed?

So, how much can you earn while on Social Security before it becomes taxable?3 Even though you paid Social Security taxes during your working years that reduced your take-home pay, some of your Social Security benefits may be taxable income. No one pays taxes on the first 15% of their Social Security benefit. However, the remaining 50% to 85% may be taxed, depending on your income.

In other words, for every $100 you receive, $15 isn't taxable, and some or all of the remaining $85 may be taxable.

  • If your combined income is more than $25,000 and your tax filing status is single, you may have to pay tax on as much as 50% of your benefits.
  • If your combined income is more than $34,000 and your tax filing status is single, you may have to pay tax on as much as 85% of your benefits.
  • If your combined income is more than $32,000 and your tax filing status is married filing jointly, you may have to pay tax on as much as 50% of your benefits.
  • If your combined income is more than $44,000 and your tax filing status is married filing jointly, you may have to pay tax on as much as 85% of your benefits.

It's important to note that these Social Security income limitations aren't quite as low as they sound.

How do you calculate your combined income?

Combined income has a specific definition when it comes to taxes on Social Security benefits. It's calculated like this:

  • Half of your Social Security benefits
  • Plus your adjusted gross income
  • Plus nontaxable interest

Your combined income is important because it affects how much tax you may owe on your benefits.

Adjusted gross income is a term you're probably familiar with from filing your annual tax return.

  • Income is your wages, dividends, capital gains, business income, retirement distributions and other income.
  • Adjustments to income are also called above-the-line deductions. For 2021, there were about two dozen expenses you could claim as adjustments, such as educator expenses, health savings account contributions, certain retirement account contributions and student loan interest.
  • Adjusted gross income is your income minus adjustments.

Nontaxable interest is also called tax-exempt interest income. If you own any bonds issued by a state, city, county or the District of Columbia (or bond funds that hold these investments), you may be earning tax-exempt interest income.

Combined income example

Here's a sample combined income calculation to help those definitions make sense.

  1. Half of your Social Security benefits: Say you and your spouse together receive $2,600 in Social Security benefits each month, or $31,200 per year. Half of $31,200 is $15,600.
  2. Adjusted gross income: You and your spouse took $50,000 in 401(k) distributions and earned $2,000 in stock dividends from your taxable brokerage account. Your AGI is $52,000.
  3. Nontaxable interest: You earned $1,000 from a long-term tax-exempt municipal bond fund.

Your combined income would be $15,600 + $52,000 + $1,000 = $68,600.

What should you consider before working while on Social Security?

If you're thinking about claiming Social Security while continuing to work, you may want to consider these factors.

Do you need Social Security right now?

If you can delay claiming, your monthly benefit payment could be higher for life. This higher benefit may also help any survivors who may be eligible for benefits on your earnings record, such as a spouse or dependent child, if you were to die before them.

If you claim Social Security before you reach full retirement age and earn income from work, your monthly benefit payment may be temporarily reduced. In the years before you reach full retirement age, the SSA must withhold $1 of Social Security benefits for every $2 you earn once your earnings hit a certain threshold ($19,560 in 2022). The SSA will withhold less in the year you reach full retirement age. Then, you will receive the withheld money once you reach full retirement age.

How much tax could you owe?

Many people in their 60s, 70s and beyond work because they need the money or because they want to remain engaged. If you're on the fence about continuing to work, you might want to learn what your take-home pay could be given the income taxes you may owe. Could the money you gain be worth the time you spend working?

This calculation requires you to consider and understand combined income and Social Security benefit taxes as well as your marginal federal and state tax rates. Some people may prefer not to keep working after calculating how much of their income would go to taxes.

What should you consider before claiming Social Security?

If you're thinking about retiring and starting Social Security benefits, you might want to ask yourself, "Am I in the highest-earning years of my career?" If so, continuing to work could help you get a larger Social Security benefit for life.

If you're already eligible for the maximum Social Security benefit, working the extra years may not help. But if you aren't, you may want to calculate how much the extra years of work could boost your benefits. The biggest financial gain may come from staying in the workforce longer.

It's important to make sure you're getting the most out of Social Security. Connect with afinancial advisorfor help with this decision. You can make the best choice when you have the information you need.

1Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

2Hypothetical examples are for illustrative purposes. May not be representative of actual results.

3Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.