Mastering the Social Security Earnings Limits for Working Retirees

Source: Kiplinger

If you have claimed Social Security benefits but haven't reached your Full Retirement Age (FRA) yet, earning a paycheck could temporarily reduce your monthly benefit. This rule is known as the Retirement Earnings Test (RET). It applies specifically to wages and net self-employment income, meaning your pensions, investments, and rental income generally won't trigger a reduction.

For 2025, the earnings threshold is $23,400 for those under their FRA. If you earn more than this, the Social Security Administration (SSA) will withhold $1 in benefits for every $2 you earn above the limit. If you reach your FRA during 2025, the limit is higher ($62,160), and the penalty is more lenient ($1 withheld for every $3 earned) until your birthday month.

There is a special rule for your first year of retirement called the "Monthly Earnings Test." This prevents you from being penalized for the high salary you might have earned earlier in the year before you retired. As long as your monthly earnings dip below $1,950 (in 2025) after you claim benefits, you can usually receive your full check for those months regardless of your total annual income.

The most important takeaway is that this money is not lost forever. Once you officially turn your Full Retirement Age, the earnings test no longer applies, and the SSA recalculates your benefit. They credit you for the months where payments were withheld, resulting in a permanently higher monthly check for the rest of your life to make up for the earlier deductions.

While working in retirement is a great way to stay active and boost your savings, it requires careful planning to avoid surprise overpayment notices. Navigating these thresholds or choosing to delay benefits until your FRA can help you maximize your cash flow.

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