Collecting Social Security while still working sounds like a reasonable plan. The benefits arrive monthly, the paycheck keeps coming, and the math seems to add up. For retirees who have not yet reached full retirement age, though, a rule that most people never read about can quietly erase a significant portion of those benefits before they ever reach a bank account.
The earnings test is one of the least understood features of Social Security, and it catches every retiree off guard every year. Knowing how it works, what it costs, and how it eventually resolves is essential for anyone considering collecting benefits before age 67.
How the Earnings Test Actually Works
Full retirement age for anyone born in 1960 or later is 67, but before that threshold arrives, the Social Security Administration applies what is formally called the Retirement Earnings Test to beneficiaries who continue working. Once a retiree’s wages exceed certain annual limits, the Social Security Administration begins withholding benefits.
In 2026, there are two separate thresholds depending on how far a retiree is from full retirement age. For those who will not reach FRA at any point during the year, the limit is $24,480. For every $2 earned above that amount, $1 in Social Security benefits is withheld. A retiree earning $44,480 in wages, for example, would have $10,000 withheld from their benefits for the year.
In the year a retiree actually reaches full retirement age, the threshold jumps to $65,160, and the formula softens to $1 withheld for every $3 earned above that limit. The month full retirement age arrives, the earnings test disappears entirely.
What the Number Means in Practice
Consider a 64-year-old who retired early, began collecting Social Security, and then returned to part-time consulting work, generating $50,000 in annual wages. That income exceeds the $24,480 threshold by $25,520.
Now divide this overage by two, and the SSA will withhold $12,760 in benefits for the year. Depending on the size of the monthly benefit, that could mean several months of checks going completely dark. The impact is not permanent, which matters, and once a retiree reaches full retirement age, the SSA recalculates the monthly benefit to account for the months when benefits were withheld.
On the plus side, the benefit rises, and the retiree effectively gets credit for the money that was held back. Viewed over a long retirement, the withheld benefits are not lost so much as deferred. The problem is that the short-term cash flow gap, which arrives without warning for retirees who did not know the rule existed when they filed.
Why So Many Retirees Get Surprised
The earnings test creates problems primarily because it is not prominently communicated at the point of filing. Retirees who claim at 62 or 63 often do so because they need income, and the assumption is that Social Security plus part-time work will cover monthly expenses.
The earnings test can upend that budget entirely. According to Bureau of Labor Statistics data, nearly 11.4 million Americans over 65 were still working in 2025, and far more between 55 and 64 were approaching eligibility. A significant portion of that population is either already subject to the earnings test or will be soon after claiming.
Claims surged roughly 11% in 2025, with researchers suggesting some filers acted early out of concern about the program’s long-term solvency. Higher earners, who ironically have the most financial flexibility to wait, were among those filing at 62 in unusual numbers. For that group, the earnings test is not a theoretical concern but a real and immediate drag on what they receive.
The Case for Waiting, and When It Does Not Apply
If you move past full retirement age, the earnings test ceases to exist, and a retiree who is 68 and returns to work can earn any amount, from $50,000 to $500,000, without a single dollar of their Social Security benefit being affected. Better yet, continued high earnings after FRA can actually increase future benefits if those earnings rank among the retiree’s 35 highest years, because the SSA recalculates annually.
Returning to work after hitting Full Retirement Age does introduce other considerations worth knowing. Higher earned income can push up to 85% of Social Security benefits into taxable income, and wages that push modified adjusted gross income above certain thresholds can trigger IRMAA surcharges on Medicare Part B premiums two years later. These are manageable with planning, but they are not automatic surprises, the way earnings tests can be.
For retirees who want to keep working and collecting before FRA, the practical move is to recalculate how much annual earned income they expect and run the math against the current year’s thresholds.
Knowing in advance that benefits will be withheld allows for budget planning rather than a mid-year cash shortfall. The withheld benefits will come back eventually in the form of a higher monthly payment, but that is arguably cold comfort while the bills keep arriving in the meantime.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks