How the Social Security Earnings Test Works
If you claim Social Security retirement benefits before reaching your full retirement age (FRA), the Social Security Administration (SSA) applies an earnings test to determine if your benefits will be reduced based on your work income. This is a temporary withholding, not a permanent loss, as the withheld amounts are used to increase your monthly benefit later, once you reach your FRA.
Annual Earnings Limits
There are different earnings limits depending on whether you are under your FRA for the entire year or if you reach your FRA during the year.
- Under FRA for the entire year: For 2025, the annual earnings limit is $23,400. For every $2 you earn above this limit, $1 will be deducted from your benefits.
- In the year you reach FRA: For 2025, the earnings limit is $62,160. For every $3 you earn over this amount, $1 is deducted. This limit only applies to earnings before the month you reach your FRA.
Starting with the month you reach your FRA, there is no earnings limit, and your benefits are not reduced regardless of how much you earn.
What Counts as Earnings?
The earnings limit only considers income from work, such as wages from an employer or net earnings from self-employment. Income from pensions, investments, annuities, or other government benefits does not count towards the limit.
Recalculation at Full Retirement Age
When you reach your FRA, the SSA will recalculate your monthly benefit to account for any benefits that were withheld due to the earnings test. This recalculation results in a permanent increase to your monthly payments. Additionally, if your current full-time earnings are higher than a previous year's earnings used in your initial benefit calculation, your benefit amount may increase at FRA.
Example of Benefit Reduction
Let's consider an example for 2025 for someone who claims benefits at age 62 with a monthly benefit of $1,500 and an annual full-time salary of $60,000, which is significantly above the $23,400 earnings limit for those under FRA for the entire year. The excess earnings are $36,600 ($60,000 - $23,400). Since $1 is deducted for every $2 earned over the limit, the total reduction would be $18,300 ($36,600 / 2). With an annual benefit of $18,000 ($1,500 x 12), the reduction exceeds the total annual benefit, meaning that in this scenario, all monthly Social Security payments would likely be withheld for the year.
Pros and Cons of Working Full-Time at 62
| Aspect | Pros | Cons |
|---|---|---|
| Financial Impact | - Provides supplemental income and the ability to continue saving for retirement. - Could potentially increase future benefits if current earnings are higher than previous years. |
- Benefits will likely be withheld if income is above the earnings limit. - Claiming early results in a permanently reduced monthly benefit. - Earned income may cause Social Security benefits to be taxed. |
| Health & Lifestyle | - Maintains routine, social connection, and a sense of purpose. | - May be stressful and detract from enjoying retirement activities when younger and healthier. - Considerations regarding employer health benefits and Medicare. |
| Future Benefits | - Benefit is recalculated at FRA to account for withheld payments, leading to a higher future monthly benefit. | - Delaying benefits past FRA earns delayed retirement credits, resulting in a higher monthly payment. |
Maximizing Your Benefits While Working
To maximize total lifetime benefits while working, consider delaying Social Security. Your FRA is 67 if born in 1960 or later, and delaying until age 70 can increase your monthly benefit by 8% per year. If your full-time income is sufficient, delaying benefits can lead to a larger monthly payment for life, which may outweigh the benefit of receiving smaller, reduced payments earlier.
Conclusion
While it is possible to collect Social Security at 62 and still work full time, your income will likely trigger the earnings test and cause your benefits to be withheld due to the annual earnings limit. These withheld benefits are not lost but are used to increase your monthly payments once you reach your full retirement age. The decision to claim early while working depends on your individual financial situation and retirement goals. For those with significant income, delaying Social Security might be a better strategy to maximize lifetime benefits.
For more information, visit the Social Security Administration's page on receiving benefits while working.
