Social Security’s 2-for-1 Rule Hits Workers Earning Above $25,560 in 2027. Every Dollar Over It Withholds 50 Cents of Benefits
Going back to work can stretch a thin Social Security check, but an earnings test could quietly shrink that check right when you need it most. Know which paychecks trigger it, and which income sources never will.
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There are plenty of seniors who think they’ll be fine if they retire on Social Security alone, only to realize just how difficult it is to do that. After all, the average monthly benefit today is around $2,090. That’s only about $25,000 on an annual basis, which is barely enough to cover basic expenses these days.
If you’re collecting Social Security and are struggling to make ends meet based on your benefit checks alone, you may decide to return to work. That could mean getting a part-time job with a daily shift Monday through Friday, a weekend job, or joining the gig economy.
The good news is that you’re allowed to work while collecting benefits from Social Security. The bad news is that if you have not yet reached your full retirement age (FRA), you’ll be subject to an earnings limit. And going above it could mean losing a chunk, or in some cases, even all, of your Social Security checks.
How Social Security’s earnings rule works in 2027
Social Security has an earnings test that applies only to beneficiaries who work prior to reaching FRA. Once you reach FRA, you can earn any amount of money from work without having benefits withheld.
The limits of the earnings test tend to change from one year to the next. But in 2027, if you’re under FRA and you won’t reach FRA by Dec. 31, your earnings test limit is $25,560. You’ll lose 50 cents in benefits for every dollar in earnings above that limit.
Now, when we say “lose benefits,” you should know that you aren’t forfeiting that money on a permanent basis. Once your FRA arrives, the Social Security Administration will recalculate your monthly benefits and start sending you larger checks each month to make up for the benefits it withheld earlier.
But in the near term, your Social Security checks could be smaller. And that could make it harder to pay your bills. It could also, to some degree, defeat the benefit of working in the first place. So it’s important to know what the rules entail.
Don’t let Social Security’s earnings test trip you up
The Social Security earnings test could mess with your finances if you aren’t careful. But knowing the limit makes the rule far more manageable.
Let’s say you collect $25,000 a year in Social Security and need to supplement your income by $1,000 a month to be comfortable. In that case, you don’t have to worry about having benefits withheld at all. Even if you end up earning twice that amount, you’re still in the clear.
You should also know that it’s only income from a job that counts toward the earnings test limit for Social Security. If you have savings you withdraw from each month or investments that pay you interest or dividends, none of that counts toward the $25,560 limit in 2027.
As such, you do have a good opportunity to diversify your income. And doing so could be your ticket to enjoying retirement more and reducing some of your financial stress.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, The Washington Post, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
