The Social Security Earnings Rule That Trips Up Almost Every New Retiree

Many older Americans rush to claim Social Security benefits at age 62 because it’s the earliest point you’re allowed to sign up. And even though you won’t get your monthly benefits without a reduction until full retirement age (FRA) arrives, for many seniors, it’s worth collecting smaller benefits if it means getting that money many years sooner.

FRA for people born in 1960 or later is 67. So if you file for Social Security as early as possible, you can enjoy five more years of benefits, which may be worth the tradeoff of smaller checks.

But if you’re going to continue to work in some capacity while collecting Social Security, it’s important to understand the rules for people who haven’t yet reached FRA. There’s a specific rule that can be somewhat confusing, so you need to make sure it doesn’t mess with your income plans.

How Social Security’s earnings test work

The Social Security Administration (SSA) allows beneficiaries to work. And once you’ve reached FRA, you can earn any amount of money without a negative impact on your benefits.

In fact, in that situation, working could have a positive impact on your benefits. If you keep working full-time and make a nice salary, those earnings will get added to your wage history and could lead to larger retirement checks.

But if you work while receiving Social Security and you have not yet reached FRA, you’ll be subject to an earnings test. And you should know that earning too much means having benefits withheld.

The earnings test limits change every year. But the formula is pretty straightforward:

• If you won’t reach FRA at any point this year, you’ll have $1 in Social Security withheld per $2 in earnings above $24,480.
• If you will reach FRA at any point this year, you’ll have $1 in Social Security withheld per $3 in earnings above $65,160.

Now it’s important to know what happens to withheld benefits, because they aren’t lost forever.

Once you reach FRA, the SSA will recalculate your monthly benefits based on the amount it withheld earlier. You’ll get credit for those withheld amounts, and your checks should rise.

But on a short-term basis, withheld benefits could upend your retirement budget and make it more difficult to pay your bills. So it’s important to prepare for reduced Social Security checks if you expect to keep working while collecting benefits and anticipate that your wages will exceed the earnings test thresholds.

It’s important to know the rules

The earnings test often creates problems for Social Security recipients because they don’t know it exists and they don’t understand how it works. So it’s important to read up on the earnings test if you expect to continue working while on Social Security.

That said, the earnings test has different thresholds every year that rise with inflation. So while the numbers above apply to 2026, they’re likely to increase for 2027.

The SSA typically announces earnings test limits for the following year each October, along with other key updates, like its annual cost-of-living adjustment. So if you’re planning to claim Social Security next year prior to FRA and have a job at the same time, you’ll want to tune in later this year to see how much leeway you have to earn money before risking having a portion of your monthly benefits withheld.