How will freelance work affect social security?

submitted by Joe Beckford

Retirement may give you the freedom to write a novel or exercise your green thumb, but it does not mean you have to stop working altogether. While you can collect social security at the full retirement age (67 if you were born after 1960), many people continue their career or start a side project for extra income. However, freelance, contract or sideline work will affect your social security benefits. Here’s what you need to know. 

Extra Income and Extra Social Security 

The income from side work can give you financial flexibility, both as you’re earning it and as you’re collecting social security. You may have retired from your 8-to-5 career, but your new hobby or part-time gig is still funding social security. That means the SSA, after reviewing your yearly income, may increase your benefits (maximum of $2,687 per month as of 2017).   

What Income Counts? 

Commission, freelance work and bonuses all affect the annual calculation by the Social Security Administration. As you earn this extra income, you should report it immediately to ensure those new dollars factor in to your annual benefits. However, pensions, investment income and government or veteran benefits will not change your social security earnings.   

Collecting Early But Still Working? 

If you are under full retirement age, collect social security and make more than your earnings limit (maximum of $16,920 as of 2017), then your benefits will decrease. For every $2 you earn above your limit, the SSA will subtract $1 from your benefits. Again, if you earn $16,922, your monthly social security check will go down by $1. While small overages may have little effect, drawing early and earning more will quickly reduce your potential income.   

In addition, the year you reach full retirement age, the earnings limit increases significantly (maximum of $44,880 as of 2017), with a deduction of $1 for every $3 over the amount.  

When you do arrive at full retirement, there is no earnings limit. In fact, any additional income you earn may increase your social security benefit. While not everyone can wait to collect, if possible, wait until full retirement age to maximize your income.  

Report Every Dollar 

While it can be difficult to keep track of extra income, you must always report it to the IRS. Not only will those dollars affect your taxes, but they may also adjust your social security benefits. If changes happen mid-year, you can report those changes online at www.ssa.gov. For a complete list of changes you must report, you can read more here.  

Need More Help? 

Even for the financially savvy, social security is confusing. If you’re nearing retirement and wanting to supplement your income with freelance or contract work, consider meeting with a financial advisor. Having expert advice can help you avoid unexpected reductions in your social security benefits.  

Certainly, it is important to keep active during retirement, which is why a part-time job is an attractive possibility. However, you should know how the extra income will affect your future financial freedom before you jump in to anything.