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Side Hustles for Retirement: A Growing Trend
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Retiring doesn’t always mean stopping work entirely. Many retirees find themselves drawn to side hustles, seeking extra income, personal fulfillment, or simply a way to stay engaged. However, it’s crucial to understand how these earnings can impact your Social Security benefits, especially before you reach full retirement age.
The Social Security Administration (SSA) has rules in place regarding how much you can earn from working while receiving benefits before reaching your full retirement age. These rules are designed to ensure that individuals who continue to work receive a benefit that reflects thier contributions, but also to prevent a situation where working significantly reduces the benefits they are entitled to.
How Earnings Affect Benefits Before Full Retirement Age
If you start receiving Social Security retirement benefits before you reach your full retirement age, and you continue to work, your benefits may be reduced if your earnings exceed a certain limit. For 2024,this limit is $22,320 per year. For every $2 you earn over this limit, your Social Security benefit will be reduced by $1.
It’s important to note that this reduction is not a permanent loss of benefits. The SSA will recalculate your benefit amount once you reach your full retirement age. The months during which your benefits were reduced or withheld due to excess earnings will be credited back to you, and your monthly benefit will be adjusted accordingly. This means that while your monthly payments might be lower temporarily, you won’t lose out on the total amount your entitled to over your lifetime.
What Happens When You Reach Full Retirement Age
The rules change significantly once you reach your full retirement age. Your full retirement age depends on your birth year, but for those born in 1960 or later, it is 67.
Once you reach your full retirement age, your Social Security benefits are no longer reduced, nonetheless of how much you earn from a side hustle or any other employment. You can work and earn as much as you want without affecting your monthly benefit amount. Furthermore,as mentioned earlier,the SSA will recalculate your benefits to give you credit for any months when your benefits were reduced or withheld due to excess earnings.
Fast Fact
Your Social Security benefits will only be reduced based on net income from your side hustle. Your benefits won’t be reduced if you have other income from retirement accounts, annuities, pensions, interest, veteran’s benefits, investments, or other government/military benefits.
The Bottom Line
Nearly two-thirds of Americans expect to rely on multiple sources of income in retirement, and more than a third expect a side hustle to be their primary source of income, rather than retirement accounts or Social Security benefits. If you’re one of them, be sure you understand the legal and tax requirements of having a side hustle, including which permits and licenses you will need and how to pay estimated taxes.
It’s also important to know how it impacts your Social Security benefits.Before you reach full retirement age, income from a side hustle can reduce your monthly benefit.Though, there is no impact on your monthly benefit once you reach full retirement age, no matter how much income you earn.