Unlocking the Social Security Special Monthly Earnings Rule: A Powerful Tool for Early Retirees

Retiring before full retirement age can come with a few financial hurdles—especially if you’re still working part-time. But there’s a special rule in the Social Security system that a lot of people don’t know about, and it can make a huge difference in your first year of retirement.

It’s called the Special Monthly Earnings Rule, and in this episode, I broke it down to show how it works, how you can take advantage of it, and why it’s such a valuable strategy for early retirees.

What Is the Special Monthly Earnings Rule?

Normally, if you start collecting Social Security before full retirement age and you’re still working, your benefits are subject to the annual earnings limit—$23,400 for 2025. If you go over that, $1 in benefits is withheld for every $2 you earn above the limit.

But here’s the good news: in the first calendar year you collect Social Security, you’re not automatically bound by the annual limit. Instead, you get the option to have your benefits calculated month-by-month, as long as your earnings in each individual month stay under the limit.

In 2025, the monthly limit is:

• $1,950 for those under full retirement age
• $5,180 for those reaching full retirement age later that year

This rule allows people to ease into retirement—maybe by working full-time for part of the year and then transitioning to part-time or no work—without being unfairly penalized.

Maria’s Story: A Real Example

Let’s say Maria is 62 and starts collecting benefits in August 2025. Her monthly Social Security benefit is $1,900. From January to July, she earns $90,000 working full-time. That would blow past the annual earnings limit and normally wipe out most of her benefits.

But because of the Special Monthly Earnings Rule, only her income from August to December matters—where she earns just $1,500/month in part-time work. That’s below the $1,950 limit, so she gets to keep all five months of Social Security benefits, totaling $9,500.

In total, Maria earns:

• $90,000 in wages (Jan–July)
• $7,500 in part-time work (Aug–Dec)
• $9,500 in Social Security (Aug–Dec)

Had she been subject to the annual limit, about $33,300 of her benefits would’ve been withheld. The Special Monthly Rule saved her a huge chunk of money.

Annual Earnings Limit Still Matters (Eventually)

After the first year, the monthly rule goes away and you’ll be subject to the annual earnings limit if you continue to work and haven’t hit full retirement age yet. But even then, benefits aren’t lost forever. They’re recalculated and spread out over your lifetime once you reach full retirement age—so you get it back gradually.

Earned Income vs. Passive Income: What Counts?

Only earned income counts toward the limit—think wages, self-employment income, commissions, severance, or vacation payouts. What doesn’t count? Things like:

• Rental income
• Pension payments
• Dividends and interest
• IRA or 401(k) withdrawals
• Annuities

Also, what matters is when the income is earned, not necessarily when it’s paid. That detail is important for accurate benefit calculations.

A Note on Accuracy and Transparency

I also want to take a moment to own up to a mistake. In a past video, I incorrectly stated that the Special Monthly Earnings Rule would be going away in 2026. That was based on a misleading, AI-generated document that looked official—but wasn’t. I’ve since taken the video down and want to apologize for the confusion. It’s a good reminder for all of us to double-check our sources, especially when it comes to retirement planning.

Key Takeaways for Retirees

• The Special Monthly Earnings Rule only applies in the first calendar year you receive benefits.
• It allows you to work part of the year and still receive full benefits if your monthly earnings are under the limit.
• Plan your income carefully—you could save thousands in withheld benefits.
• Once you reach full retirement age, there’s no earnings limit—you can earn as much as you want without affecting benefits.

Final Thoughts

This rule is one of the most powerful—and overlooked—tools in the Social Security playbook. If you’re thinking about retiring early or transitioning to part-time work, take advantage of it. It can give you flexibility, financial breathing room, and confidence as you begin your retirement journey.

If you found this helpful, I’d love for you to share it with someone who needs to hear it. And as always, stay tuned and stay informed—we’ve got more Social Security tips coming soon.