Whether your Social Security retirement benefits will be affected if you decide to go back to work depends on when you started receiving the benefits and how much you earn when you work.
According to the Social Security Administration, if you started receiving benefits before you reached full retirement age, you can earn up to $14,160 a year in 2011 without affecting your benefits. If you earn more than that amount, your benefits are reduced $1 for every $2 you earn.
If you started receiving benefits after reaching full retirement age, you can earn up to $37,680 a year in 2011 without losing any benefits. If you earn more than that, your benefits are reduced $1 for every $3 you earn. These maximum amounts are subject to change each year.
During the first year of retirement, when you retire at some point during the calendar year and may have already earned more than the annual limit before you retired, the Social Security Administration applies a special earnings test rule.
If you start receiving benefits before you reach full retirement age, during that first year you will be considered retired and will receive your full Social Security benefits in any month that you earned $1,180 or less and were not self-employed devoting more than 45 hours a month to your own business, or between 15 and 45 hours a month if you are in a highly-skilled occupation.
If you have reached full retirement age, during the first year you will be considered retired any month in which you earn $3,140 or less and did not devote the above-mentioned number of hours to self-employment.
During your second year of retirement, you benefits are based on your annual earnings.
If you start receiving social security benefits before you reach full retirement age and your benefits are reduced because you are working, your benefits will be adjusted when you reach full retirement age to compensate for the reduction in benefits.
Also, your Social Security benefits may increase if you work after you start receiving social security benefits. That is because the Social Security Administration takes into account your 35 years with the highest earnings to calculate your benefits. If the amount you earn in a year that you are receiving benefits is higher than one of the other years in the 35 year history, your benefits will be automatically adjusted.
If you work while receiving Social Security benefits, your salary or wages are still subject to Social Security and Medicare taxes. This also applies if you are self-employed. In that case you would pay these taxes through the self-employment tax you calculate on your net earnings on Schedule SE when you file your annual income tax return.
You should also note that working while you are receiving Social Security benefits could affect the amount of your benefits that are subject to federal income tax. This depends on your total income and your filing status. You can see Are Your Social Security Benefits Taxable, and Publication 915, Social Security and Equivalent Railroad Retirement Benefits, on the IRS website for more information.
Sources:
Are Your Social Security Benefits Taxable, IRS
Frequently Asked Questions, Social Security Online
Publication 915, Social Security and Equivalent Railroad Retirement Benefits, IRS
Schedule SE, Self-Employment Tax, IRS