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(Maury Beckman)

Inflation made 2022 a very difficult year for many. The higher cost of living has forced many consumers to pile up credit card debt and drain their savings at an uncomfortable rate just to stay afloat. And while the pace of inflation has thankfully slowed since peaking earlier this year, we could still be in for many more months of cost-of-living increases.

If you’re retired and you’ve been forced to aggressively leave your nest egg to cope with higher living expenses, you may be thinking it’s time to get back to work. Returning to the workforce can provide an opportunity to leave your savings alone for a while and even increase your cash reserves to better position you to handle higher expenses.

But if you’re planning to retire and return to work while you’re already collecting Social Security, you may be in for a nasty surprise. And it can derail your financial plans.

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When you keep benefits at risk

The Social Security Administration allows people to receive monthly benefits even if they are still gainfully employed or returning to work. And once you reach full retirement age (FRA) for Social Security purposes, you can earn any amount from work without it reducing your benefits.

But let’s say you retired and signed up for Social Security at age 62 a few years ago, and now you’re 64 and thinking about going back to work. In that case, earnings above a certain limit can cause your Social Security wages to be reduced.

This year, you could earn up to $19,560 a year in that situation without affecting your benefits. In 2023, that limit will increase to $21,240. But beyond that, you’ll risk having $1 in Social Security income withheld for every $2 you earn.

You should know that these earnings test limits are different for people who collect Social Security and work the year they reach FRA. In that case, the earnings limit in 2022 is $51,960. In 2023, it is $56,520. Beyond that point, someone in that boat is risking $1 in Social Security for every $3 in income.

It’s also worth noting that Social Security benefits withheld in these situations are not completely lost. If you withhold some benefits for earning too much, that amount will be returned to you once you reach FRA.

However, if you are on Social Security and considering returning to the workforce due to today’s tough economic climate, you should carefully read the rules involved. You may decide to return to work on a part-time basis to avoid having Social Security income withheld. Or you may decide that you need a full-time job but will receive a lower Social Security benefit each month.

The key, however, is not to be caught off guard. That’s really when you can face a world of financial trouble.

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