Here’s a breakdown of how Social Security and 401(k)s work together:
Social Security:
- A government-funded program that provides retirement income to eligible individuals.
- Benefits are based on your lifetime earnings.
- You can start collecting benefits as early as age 62, but your benefit amount will be reduced if you claim before your full retirement age (FRA).
- Your FRA depends on your birth year, but it is typically between 66 and 67.
- If you continue working after claiming benefits, your benefits may be reduced if your earnings exceed a certain limit.
401(k):
- A retirement savings plan offered by many employers.
- You contribute pre-tax dollars from your paycheck to the plan.
- Your contributions grow tax-deferred, meaning you don’t pay taxes on the earnings until you withdraw them in retirement.
- Some employers offer matching contributions, which can significantly boost your retirement savings.
- You can continue contributing to your 401(k) even after you start collecting Social Security benefits.
Here are some of the benefits of collecting Social Security and contributing to a 401(k) at the same time:
- Increased retirement income: Combining Social Security benefits with a 401(k) can provide you with a more secure and comfortable retirement.
- Tax diversification: Social Security benefits are taxed differently than 401(k) distributions, so having both income sources can help you diversify your tax burden.
- Flexibility: You can adjust your withdrawal amounts from each source to meet your changing needs in retirement.
Here are some things to keep in mind when collecting Social Security and contributing to a 401(k):
- Social Security earnings limit: If you continue working after claiming Social Security benefits, your benefits may be reduced if your earnings exceed a certain limit. For 2023, the limit is $21,240 per year.
- Required minimum distributions (RMDs): Once you reach age 72, you must start taking RMDs from your 401(k). These distributions are taxed as ordinary income.
- Taxes on Social Security benefits: A portion of your Social Security benefits may be taxed as ordinary income if your combined income exceeds a certain limit.
Overall, collecting Social Security and contributing to a 401(k) is a great way to maximize your retirement income. However, it’s important to understand the rules and regulations surrounding each program so that you can make informed decisions about your retirement planning.
Here are some additional resources that you may find helpful:
- Social Security Administration: https://www.ssa.gov/
- Internal Revenue Service (IRS): https://www.irs.gov/retirement-plans
- Merrill Edge: https://www.merrilledge.com/article/working-while-collecting-social-security
Disclaimer: I am not a financial advisor, and this information should not be considered financial advice. Please consult with a qualified financial advisor before making any decisions about your retirement planning.
Use our Retirement Earnings Test Calculator to find out how much your benefits will be reduced.
There is a different work test for beneficiaries working outside of the United States. If you live outside of the United States, visit the Social Security Office of Earnings & International Operations page to find the office that serves your country of residence.
It is possible to work and receive Social Security retirement benefits simultaneously. On the other hand, we will lower your benefits if you are under full retirement age and earn more than the annual cap. No matter how much you make, we won’t cut your benefits starting the month you reach full retirement age.
When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net earnings if youre self-employed. We include bonuses, commissions, and vacation pay. We dont count pensions, annuities, investment income, interest, veterans benefits, or other government or military retirement benefits.
When you’re ready to apply for retirement benefits, use our online retirement application, the quickest, easiest, and most convenient way to apply.If you need to report a change in your earnings after you begin receiving benefits: If you receive benefits and are under full retirement age and you think your earnings will be different than what you originally told us, let us know right away. You cannot report a change of earnings online. Please call us at 1-800-772-1213 (TTY 1-800-325-0778), 8:00 a.m. – 7:00 p.m., Monday through Friday, or contact your local Social Security office.
Slow to catch on
But the idea of the 401(k) bridge has been slow to catch on, even among the large number of people who decided during the pandemic to retire early. One reason is that it’s so new; the generation for which the 401(k) replaced the pension that most workers once enjoyed but barely 1 in 5 still get is only now entering retirement, according to the Economic Policy Institute. Retirement account savings overtook pension fund assets in 2012, the institute reports.
“Many baby boomers are just starting to retire, and they are the first generation to structure their retirement savings around 401(k)s,” says Katie Kavehrad, a wealth adviser-planner at Knoxville, Tennessee’s Paradigm Wealth Partners.
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How 401k Withdrawals Impact Social Security Earnings Limit
Can I get Social Security retirement and work at the same time?
When you begin receiving Social Security retirement benefits, you are considered retired for our purposes. You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits.
Can I get Social Security & survivors benefits at the same time?
You can get Social Security retirement or survivors benefits and work at the same time. However, there is a limit to how much you can earn and still receive full benefits. If you are younger than full retirement age and earn more than the yearly earnings limit, we may reduce your benefit amount.
Can I receive Social Security retirement benefits if I’m still working?
If you are eligible for retirement benefits this year and are still working, you can use our earnings test calculator to see how your earnings could affect your benefit payments. You can receive Social Security retirement or survivors benefits and work at the same time.
Will Social Security deduct my 401(k) if I’m under full retirement age?
If you are under full retirement age for the entire year, the SSA will instead deduct $1 from your benefit payments for every $2 you earn above the annual limit of $21,240 ($22,320 in 2024). Should I Use My 401 (k) Before Social Security?