Understanding the Full Retirement Age vs. Age 65
One of the most common misconceptions about Social Security is that age 65 is the universal "full retirement age" (FRA). While 65 has historically been a marker for retirement, the FRA has been gradually increasing. For anyone born in 1960 or later, your FRA is 67.
- The Difference: This distinction is critical because whether or not your benefits are reduced by working full-time depends entirely on if you have reached your FRA. At age 65, if your FRA is 67, you are still considered an early filer by the Social Security Administration (SSA) and are subject to the retirement earnings test.
- Age 65 Milestone: Age 65 remains a significant milestone for other programs, most notably Medicare eligibility. This often causes confusion between the two different federal programs and their respective age requirements.
How the Earnings Test Affects Your Benefits at 65
If you have not yet reached your full retirement age (which is the case for most people turning 65 today), the SSA applies an earnings test to your income. For 2025, the rules are as follows:
- Annual Earnings Limit: If you are under your full retirement age for the entire year, you can earn up to $23,400 without a benefit reduction.
- Benefit Withholding: For every $2 you earn over this annual limit, the SSA will withhold $1 from your Social Security benefits.
For example, if you are 65 and earn $53,400 in 2025, you are $30,000 over the annual limit ($53,400 - $23,400). The SSA would withhold $15,000 from your benefits ($30,000 divided by 2). This withholding happens regardless of whether you are working part-time or full-time.
Working in the Year You Reach Full Retirement Age
The rules change in the calendar year you reach your FRA. In this year, the earnings limit is much higher, and the benefit reduction is less severe.
- Higher Annual Limit: For 2025, if you reach your FRA during the year, you can earn up to $62,160 before your benefits are affected. This limit only applies to the months before you reach your FRA.
- Different Reduction Rate: During this period, the SSA withholds $1 from your benefits for every $3 you earn above the limit.
- No Limit Afterward: Starting with the month you reach your FRA, the earnings test disappears entirely. You can earn any amount of income without your Social Security benefit being reduced.
What Happens to Withheld Benefits?
One of the most important things to understand is that any benefits withheld due to your earnings before FRA are not lost forever.
- Recalculation: When you reach your full retirement age, the SSA recalculates your benefit amount to give you credit for the months in which your benefits were reduced or withheld.
- Higher Monthly Payment: This recalculation results in a higher monthly benefit for the rest of your life. For instance, the credits you would have received are factored into your new payment, so you essentially get them back over time in the form of a permanently increased benefit.
Earnings Test Rules Comparison Table (2025)
| Feature | Under Full Retirement Age (e.g., 65 in 2025) | Reaching Full Retirement Age in 2025 (at 67) |
|---|---|---|
| Annual Earnings Limit | $23,400 | $62,160 (Applies only to months before your birthday) |
| Benefit Deduction Rate | $1 withheld for every $2 earned over the limit | $1 withheld for every $3 earned over the limit |
| Earnings Counted | Wages and self-employment net income | Wages and self-employment net income |
| Limit After FRA? | No | No, starting with your birthday month |
| Benefit Recalculation | Yes, at FRA to credit back withheld benefits | Yes, at FRA to credit back withheld benefits |
The Upside: How Working Can Increase Your Long-Term Benefits
While the initial benefit reductions may seem discouraging, continuing to work can ultimately lead to a higher Social Security benefit in two ways:
- Replacing Lower-Earning Years: The SSA calculates your benefit based on your 35 highest-earning years. If you work at 65 and earn a high salary, it might replace a year of lower earnings (or a year with zero earnings) from earlier in your career. This can increase your overall average monthly earnings, boosting your benefit amount.
- Delayed Retirement Credits: If you delay claiming your benefits past your FRA, up until age 70, you can earn Delayed Retirement Credits. For every year you delay, your benefit amount increases by about 8%, resulting in a significantly larger monthly check for the rest of your life.
The Tax Impact of Working and Collecting Social Security
Another financial consideration is the potential for your Social Security benefits to be taxed. If your combined income (defined as your adjusted gross income, plus non-taxable interest, plus one-half of your Social Security benefits) exceeds certain thresholds, you may have to pay federal income tax on up to 85% of your benefits. A higher income from full-time work could push you over these limits, increasing your tax liability.
Making the Right Choice for Your Retirement
Deciding to collect Social Security at 65 while working full time requires careful consideration of both the short-term benefit reductions and the potential long-term increases. For some, the immediate income from Social Security, even if reduced, is essential. For others with sufficient savings, delaying benefits could lead to a much larger guaranteed income stream later in life. Consulting with a financial advisor can help you weigh these options based on your personal financial situation and life expectancy. The SSA also provides helpful online calculators and resources to estimate your benefits. For more information on how working affects your benefits, visit the Social Security Administration's website.
Important Considerations for Working at 65
- Understand Your Full Retirement Age: Do not assume your FRA is 65. For most modern retirees, it is 67, and you must understand this to correctly plan for the earnings test.
- Monitor Your Earnings: Keep track of your income relative to the SSA's annual earnings limit to anticipate how much of your benefit might be withheld.
- Benefits Are Not Lost: Remember that any withheld benefits are not permanently forfeited; they are credited back to you in the form of a higher monthly payment after you reach your FRA.
- Higher Future Payments: Continuing to work and delaying your claim can lead to higher lifetime benefits. Your earnings might replace a lower-earning year, and delayed retirement credits can further increase your payments.
- Beware of Taxable Benefits: Be mindful of the potential tax implications. Working full-time will likely increase your combined income, possibly making a portion of your Social Security benefits taxable.
