Receiving Social Security benefits doesn’t mean you have to stop working. In fact, continuing to work can potentially increase your future benefits. However, it’s important to understand how your earnings might affect your Social Security payments, especially if you are under full retirement age. This guide will explain the earnings limits and how they work, ensuring you know how much money you can earn while receiving Social Security without significantly impacting your benefits.
Working While Receiving Social Security Benefits: What to Know
Many people wonder if they can work and still receive Social Security retirement or survivors benefits. The answer is yes, you can. Social Security encourages beneficiaries to work, as it can lead to a recalculation of your benefits, potentially increasing your future payments. Each year, the Social Security Administration (SSA) reviews earnings records. If your latest year of earnings is among your highest, they will recalculate your benefit, and you’ll receive any due increase, retroactive to January of the following year. For those receiving survivors benefits, working can also increase your potential retirement benefit, possibly making it higher than your current survivors benefit.
However, while you are under your full retirement age, there’s an earnings limit. If your earnings exceed this limit, your Social Security benefits may be reduced. It’s crucial to understand these limits to plan your work and benefits effectively.
Understanding the Earnings Limits Before Full Retirement Age
When you are younger than full retirement age, there is a limit to how much you can earn before your Social Security benefits are affected. For 2025, if you remain under full retirement age for the entire year, the annual earnings limit is $23,400. If your earnings go above this amount, the SSA will deduct $1 from your benefit payments for every $2 you earn over the limit.
This rule is designed to adjust benefits for those who are still actively working and earning a substantial income before reaching full retirement age. It’s important to note that this limit and reduction only apply to earnings before you reach full retirement age.
Earnings Limit in the Year You Reach Full Retirement Age
The rules are slightly different in the year you reach your full retirement age. In 2025, the earnings limit for the months before you reach full retirement age is $62,160. For earnings above this limit, the deduction is $1 in benefits for every $3 earned. It’s also important to note that for this specific year, only earnings accumulated up to the month before you reach full retirement age are counted towards this limit. Earnings after you reach full retirement age month are not subject to this limit.
This higher limit and reduced deduction rate reflect the transition as you approach full retirement age. After you reach full retirement age, these earnings limits disappear entirely.
Special Rule for Your First Year of Retirement
There’s a special rule that can apply during your first year of retirement. If your earnings for the entire year exceed the annual limit, but you were considered “retired” for any whole month within that year, you can still receive your full Social Security benefit for those months. The SSA has a monthly earnings test in the first year of retirement that allows them to consider you retired in any month you earn less than a certain threshold and do not perform substantial services in self-employment. This rule ensures you can receive benefits for months of low or no earnings, even if your yearly earnings are high.
What Happens When You Reach Full Retirement Age?
Once you reach your full retirement age, the earnings limits disappear completely. Beginning with the month you reach full retirement age, you can earn any amount of money without any reduction in your Social Security benefits. This is a significant advantage, as it allows you to work and earn as much as you want while still receiving your full Social Security payments.
Furthermore, the SSA will recalculate your benefit amount after you reach full retirement age to give you credit for any months your benefits were reduced or withheld due to excess earnings prior to reaching full retirement age. This means you are not losing out on those benefits permanently; instead, your future monthly benefit amount will be adjusted upwards to account for earnings that previously reduced your benefits.
Examples of How Earnings Affect Your Benefits
Let’s look at a couple of examples to illustrate how these earnings limits work in practice for 2025:
Example 1: Under Full Retirement Age All Year
Suppose you are under full retirement age for all of 2025 and are entitled to $800 per month in Social Security benefits ($9,600 for the year). You work and earn $32,320 during the year.
- The annual earnings limit for 2025 is $23,400.
- Your earnings exceed the limit by $8,920 ($32,320 – $23,400 = $8,920).
- Your benefits will be reduced by $4,460 ($1 for every $2 over the limit, so $8,920 / 2 = $4,460).
- You will receive $5,140 in Social Security benefits for the year ($9,600 – $4,460 = $5,140).
Example 2: Reaching Full Retirement Age in August 2025
Imagine you reach full retirement age in August 2025 and are entitled to $800 per month ($9,600 for the year). You earn $69,000 during the year, with $63,000 earned from January through July (before reaching full retirement age).
- The earnings limit for months before full retirement age in 2025 is $62,160.
- Your earnings before August exceed the limit by $840 ($63,000 – $62,160 = $840).
- Your benefits will be reduced by $280 ($1 for every $3 over the limit, so $840 / 3 = $280).
- You will receive $5,320 in benefits for January through July ($5,600 – $280 = $5,320).
- Starting in August 2025, when you reach full retirement age, you will receive your full $800 per month benefit, regardless of how much you continue to earn for the rest of the year.
What Types of Earnings Count Towards the Limit?
When calculating how much to deduct from your benefits, the SSA only counts the money you earn from your job or your net profit if you are self-employed. This includes wages, bonuses, commissions, and vacation pay. However, certain types of income do not count towards the earnings limit. These include:
- Pensions
- Annuities
- Investment income
- Interest
- Veterans benefits
- Other government or military retirement benefits
Understanding what counts as earnings and what doesn’t is crucial for accurately estimating how your work might affect your Social Security benefits.
Maximize Your Benefits While Working
Working while receiving Social Security benefits can be a smart financial move. While earnings limits exist for those under full retirement age, understanding these rules allows you to plan your work and benefits effectively. Remember, once you reach full retirement age, these limits disappear, and you can earn as much as you like without impacting your benefits. Furthermore, working can potentially increase your future Social Security benefits through annual recalculations.
If you are eligible for retirement benefits and are still working, consider using the SSA’s earnings test calculator to estimate how your earnings might affect your benefit payments. For more detailed information, refer to the SSA publication, “How Work Affects Your Benefits.” Understanding these guidelines helps you make informed decisions to maximize your financial well-being during retirement and beyond.
