Can You Receive Both Unemployment and Social Security Benefits?
Image: Bigstock
Retirement can be a time of great change, and for many, it doesn't always go as planned. Some individuals may find themselves out of work close to retirement, relying on unemployment benefits to get by. At the same time, they may be considering drawing from Social Security. But can you collect both simultaneously? The answer isn’t a simple “yes” or “no” and depends largely on where you live.
While Social Security retirement benefits don't directly impact your ability to collect unemployment benefits, some states have rules that could reduce your unemployment compensation if you’re also receiving Social Security payments.
The Interaction Between Social Security and Unemployment
Social Security retirement benefits are calculated based on your work history and the taxes you've paid into the system throughout your career. On the other hand, unemployment benefits are intended to financially assist individuals who have lost their jobs.
Here’s where things get a little tricky. The Social Security Administration (SSA) doesn't consider unemployment benefits as “earnings,” so collecting unemployment will not reduce your Social Security payments. But that doesn't mean it is smooth sailing. Some states have implemented policies that offset your unemployment benefits if you're also collecting Social Security.
Why Some States Reduce Unemployment Benefits
The logic behind the offset is that unemployment benefits are meant to help people who are temporarily out of work but actively seeking employment. States with offset rules may view Social Security recipients as not needing the same level of financial support as they are already receiving income from another source. However, the pushback from older Americans who rely on both forms of income has led many states to adjust these policies.
Currently, most states do not reduce unemployment benefits due to Social Security income. However, it's still essential to know your local unemployment insurance rules, as they can vary significantly from state to state. If you're living in a state with an offset, you could see your unemployment benefits reduced by a portion of your Social Security income, or in some cases, you may be disqualified from receiving unemployment altogether.
How Social Security Treats Earnings
Another important consideration is how Social Security treats any income you earn if you continue working during retirement. If you take Social Security before reaching full retirement age (currently between 66 and 67, depending on your birth year), your benefits may be reduced if your earnings exceed a certain threshold. In 2024, the SSA reduced your benefits by $1 for every $2 you earn above the limit of $21,240.
However, once you hit full retirement age, there are no limits on how much you can earn. Your Social Security benefits will no longer be reduced based on your income. This means that while you may face reductions in your unemployment benefits in some states, you won't have to worry about Social Security deductions once you've reached full retirement age.
Navigating Layoffs Near Retirement
Losing a job can be particularly challenging when you're nearing retirement. Many older workers face age-related barriers in finding new employment, and layoffs may lead them to consider taking Social Security earlier than planned. This decision can affect how much you receive in benefits in the long term. If you choose to take Social Security before full retirement age, your benefits will be permanently reduced.
Additionally, you may qualify for unemployment benefits to bridge the gap while searching for new work. However, it’s essential to weigh the trade-offs. In states where unemployment benefits are reduced due to Social Security, the additional income might not be as significant as you’d hoped.
Final Thoughts
Social Security and unemployment benefits can be a lifeline for many nearing retirement, but understanding how they work together is crucial. While the Social Security Administration won't reduce your benefits due to unemployment, state regulations might. It’s essential to be aware of the rules in your area and to make informed choices about when to claim Social Security and how to manage unemployment benefits.