Understanding Your Full Retirement Age (FRA)
Your Full Retirement Age (FRA) is the age at which you are entitled to receive 100% of your Social Security benefits without any reduction for working. For anyone born in 1960 or later, the FRA is 67. This means that for individuals turning 65 in 2025, they are two years shy of their FRA. Claiming benefits at age 65, rather than waiting until 67 or later, means your monthly benefit will be permanently reduced. For those born in 1960, claiming at 65 results in a benefit that is 86.7% of the full amount.
The Social Security Earnings Test Explained
The Social Security earnings test is a crucial factor for anyone who wants to collect benefits while working before their FRA. This test determines how much your benefits will be reduced if your earned income exceeds a certain annual limit. Once you reach your FRA, the earnings test no longer applies, and you can earn any amount of money without affecting your Social Security payments.
For 2025, the earnings limits are as follows:
- If you are under FRA for the entire year: The annual earnings limit is $23,400. The SSA will deduct $1 in benefits for every $2 you earn over this limit.
- In the year you reach FRA: The annual earnings limit is $62,160. The SSA will deduct $1 in benefits for every $3 you earn over this limit. This deduction only applies to earnings in the months before your FRA.
It is important to note that not all income is counted. The earnings test only considers wages from employment and net earnings from self-employment. Income from pensions, investments, annuities, or government/military retirement benefits does not affect your Social Security payments.
How Withheld Benefits are Recalculated
A common misconception is that benefits lost to the earnings test are gone forever. This is not the case. The SSA keeps track of the benefits it withheld. Once you reach your FRA, your monthly benefit amount is recalculated to account for any months in which benefits were withheld. This results in a permanent increase to your monthly benefit for the rest of your life.
For example, if you claim benefits at age 65 and have a year of benefits withheld, when you turn 67, your monthly payment will be adjusted upwards. This recalculation process is automatic and takes into account your continued earnings. In some cases, working past your FRA can even increase your benefits if your latest year of earnings is one of your top 35 years.
Potential Tax Implications
Beyond the earnings test, working in retirement can also affect the taxability of your Social Security benefits. If your “combined income” exceeds certain thresholds, you may have to pay federal income tax on up to 85% of your benefits.
- Combined Income Formula: Your Adjusted Gross Income (AGI) + nontaxable interest + half of your Social Security benefits.
For 2025, the thresholds are:
- Single filers: If your combined income is between $25,000 and $34,000, you may owe tax on up to 50% of your benefits. Above $34,000, up to 85% may be taxable.
- Married filing jointly: If your combined income is between $32,000 and $44,000, up to 50% may be taxable. Above $44,000, up to 85% may be taxable.
This is a critical consideration for anyone planning to work full-time while collecting Social Security, as a high salary could significantly increase your tax burden and negate some of your benefit income.
Comparison: Working at 65 vs. Waiting Until FRA
| Feature | Working and Collecting at Age 65 | Waiting Until Full Retirement Age (FRA) |
|---|---|---|
| Earnings Limit | Yes, subject to the annual earnings test. In 2025, the limit is $23,400. | No earnings limit. You can earn any amount without affecting your Social Security benefit. |
| Benefit Reduction | Benefits are temporarily reduced by $1 for every $2 earned over the limit. | No reduction due to earnings. |
| Permanent Benefit Amount | Your monthly benefit is permanently reduced by a percentage, which can be partially offset by the recalculation at FRA. | You receive 100% of your Primary Insurance Amount (PIA), plus any Delayed Retirement Credits. |
| Delayed Retirement Credits | Not applicable, as you have claimed benefits before FRA. | Earned for each month you delay benefits past FRA, up to age 70, increasing your monthly payment. |
| Tax Implications | High combined income may lead to federal income tax on your benefits. | High combined income can still result in taxes on benefits, but you avoid the complexities of the earnings test. |
How to Make the Best Choice for Your Situation
The decision to work and collect Social Security at 65 depends heavily on your financial needs and personal goals. Here are some steps to help you decide:
- Assess Your Income Needs: Determine if your full-time salary and reduced Social Security benefits will be sufficient to cover your living expenses, or if the potential benefit reduction is a deal-breaker.
- Estimate Your Future Benefits: Use the tools provided by the SSA to get an accurate projection of your benefits based on your earnings history. The SSA website offers a variety of calculators to help with this, which you can find here: SSA Benefit Calculators.
- Consider the Permanent Reduction: Understand that claiming at 65 results in a smaller monthly check for the rest of your life, even after the recalculation at FRA. Compare this reduced benefit with the higher amount you could receive by waiting.
- Factor in Potential Taxes: A higher combined income from your salary and benefits could trigger federal taxes on your Social Security. This should be part of your financial planning.
- Evaluate Your Career Plans: If you love your job and plan to work for several more years, delaying Social Security may be the optimal financial move, as it allows your benefits to grow and avoids any reduction from the earnings test.
Ultimately, there is no single right answer. Your decision should be based on a thorough analysis of your personal finances, health, and retirement timeline. Consulting a financial advisor can provide personalized guidance to help you navigate this complex choice.
Conclusion
While it is possible to collect Social Security at 65 and still work full-time, the financial implications are significant for those not yet at their full retirement age. The earnings test, benefit reductions, and potential tax liability must all be carefully considered. For many, the option exists to earn money while receiving benefits, but waiting until your FRA or even later can provide a higher, unrestricted monthly income in the long run. By understanding all the factors, you can make an informed decision that best suits your retirement goals.
