How Working Past 65Affects Social Security
Many people claim Social Security benefits while still working, either because they need additional income or want to retire gradually. But did you know that your Social Security benefits can be reduced if you earn too much before full retirement age? If you’re considering collecting benefits while continuing to work, here’s what you need to know about the earnings test, benefit reductions, and timing strategies to maximize your retirement income.
1. What Is Your Full Retirement Age (FRA)?
Your Full Retirement Age (FRA) is the age when you can start receiving your full Social Security benefits without any reductions. It depends on your birth year:
- Born 1943-1954: FRA is 66 years old
- Born 1955-1959: FRA increases by 2 months each year (e.g., 66 and 2 months for 1955, 66 and 4 months for 1956, etc.)
- Born 1960 or later: FRA is 67 years old
Understanding your FRA is crucial because taking Social Security before this age leads to a permanent reduction in benefits.
2. How Social Security Benefits Are Calculated
Your Social Security benefit is based on your highest 35 years of earnings. Here’s how your monthly check changes depending on when you claim:
At Full Retirement Age (FRA): You receive 100% of your benefit (e.g., $2,000/month if that’s your calculated FRA benefit).
Claiming Early (as soon as 62): Benefits are reduced by 6% per year before FRA, up to 30% total if taken at 62.
- Example: If your FRA benefit is $2,000 per month, taking it at 62 reduces it to $1,400 per month.
Delaying Past FRA (until 70): Benefits increase by 8% per year until age 70.
- Example: Waiting until 70 increases a $2,000 FRA benefit to $2,480 per month.
If you expect to live past 78, delaying benefits usually results in more total lifetime Social Security income.
3. Working Before FRA: The Social Security Earnings Test
If you claim Social Security before full retirement age and continue working, your benefits may be temporarily reduced based on your income.
2025 Social Security Earnings Test Limits
If you earn above certain thresholds, Social Security withholds part of your benefits:
Before the year you reach FRA:
- Earnings limit: $23,400
- Reduction: $1 deducted from benefits for every $2 earned over the limit
The year you reach FRA (until your birthday month):
- Higher earnings limit: $62,160
- Reduction: $1 deducted for every $3 earned over the limit
After Full Retirement Age:
- No earnings limit – You can earn unlimited income without any benefit reduction.
What Income Counts?
Counts toward the earnings test:
Wages (W-2 income)
1099 self-employment income
Net earnings from a business
Does NOT count toward the earnings test:
Pension payments
401(k)/IRA withdrawals
Investment income (dividends, capital gains)
Rental income
Unemployment benefits
4. How the Earnings Test Works (And Why It’s Not a Tax)
If your earnings exceed the Social Security income limits, your benefits aren’t lost forever—but they are temporarily withheld until you reach FRA.
For example:
- You are 63 years old, receive $1,500 per month ($18,000 per year) in benefits, and earn $33,400 from a job.
- This is $10,000 over the earnings limit.
- Social Security withholds $1 for every $2 over the limit = $5,000 withheld from your benefits.
Instead of losing it, Social Security recalculates your benefits at FRA, slightly increasing your monthly check to account for months when payments were withheld.
5. Should You Claim Social Security While Working?
You should claim early if:
- You need the extra income to cover expenses.
- You don’t expect to live past 78 (health issues, family history, etc.).
- Your job earnings stay below the earnings test limit.
You should delay claiming if:
- You expect to live a long time (longer life = more total benefits from delaying).
- You earn significantly over the earnings test limit (your benefits would be withheld anyway).
- You want to maximize survivor benefits for your spouse.
Final Thoughts: Plan Smart to Maximize Your Benefits
If you’re planning to work while collecting Social Security, understanding the earnings test is key to avoiding unnecessary reductions in your benefits. Before making a decision, evaluate your income, tax situation, and long-term financial goals.
Need help deciding when to take Social Security? Drop a comment below! I’d love to hear your thoughts and experiences.
