Understanding the Social Security Earnings Test at 65
Retiring at age 65 involves navigating the Social Security Administration's (SSA) Retirement Earnings Test if you plan to continue working. The impact on your benefits depends on whether you have reached your full retirement age (FRA). The earnings test may temporarily reduce your Social Security benefits based on how much you earn.
Full Retirement Age (FRA) and the Impact on Your Earnings
Your FRA is determined by your birth year, not simply reaching age 65. For those born between 1943 and 1954, it's 66; for those born in 1960 or later, it's 67. If you reach your FRA, the earnings limit is eliminated, allowing you to work unlimited hours with no effect on your Social Security benefits.
If you retire at 65 but have not yet reached your FRA, the earnings test applies. A higher annual earnings limit is in place for the portion of the year before you reach FRA. For example, in 2025, this limit is \$62,160 on earnings prior to your FRA. Exceeding this limit will result in a temporary reduction of benefits. However, a special rule in the first year of retirement can exempt you from the annual limit if your monthly earnings after retirement are below a certain threshold.
Calculating the Reduction in Benefits
Any reduction due to the earnings test is a temporary withholding, not a permanent loss. The amount withheld depends on whether you are in the year you reach FRA or an earlier year. For example, in 2025, if you are in the year you reach FRA, \$1 is withheld for every \$3 earned over the limit in the months before your FRA. The SSA recalculates your benefits at FRA to credit you for withheld amounts, potentially leading to higher future monthly payments.
Comparing Working Before vs. After Your FRA
| Feature | Working Before Full Retirement Age | Working At or After Full Retirement Age |
|---|---|---|
| Earnings Limit | Yes, annual limit applies. For 2025, if reaching FRA in that year, the limit is \$62,160 on earnings prior to birthday month. | No limit on earnings whatsoever. |
| Benefit Withholding | \$1 is withheld for every \$3 over the limit in the year of FRA, or \$1 for every \$2 if not in the year of FRA. | No withholding of benefits. |
| Impact of Hours Worked | High earnings (regardless of hours) can affect benefits. | Unlimited hours, no impact on benefits. |
| Recalculation of Benefits | Benefits are re-evaluated at FRA to increase monthly payments for previous withholding. | Not applicable. |
| Benefit Increases from New Earnings | Additional earnings can potentially increase your overall benefit amount by replacing lower-earning years. | High earnings after FRA can replace lower-earning years and potentially increase your monthly benefit. |
Example Scenarios for Working at 65
Scenario 1: You turn 65 and reach your FRA later in the same calendar year. If you turn 65 and reach your FRA within the same year, you are subject to a higher earnings limit for the months before your FRA. For instance, if you reach FRA in October 2025, the limit is \$62,160 on earnings from January to September. Exceeding this limit results in a reduction of \$1 for every \$3 earned over the limit. From October onward, there's no earnings limit.
Scenario 2: You turn 65 and your FRA is still years away. If your FRA is 67 and you retire at 65, you are subject to the lower annual earnings limit for those under FRA. For 2025, this limit is \$23,400. For every \$2 earned over this limit, \$1 is withheld. This applies until the year you reach FRA. A special monthly rule may apply in your first retirement year.
The Upside of Working in Retirement
Working in retirement can increase your overall Social Security benefit if your new earnings replace lower-earning years in the SSA's calculation, which is based on your 35 highest-earning years. Additionally, employer-sponsored health insurance may allow you to delay enrolling in Medicare Part B without penalty.
Conclusion: Planning Your Golden Years
There's no limit on hours worked at age 65; the constraint is on earnings relative to your FRA. Understanding whether you've reached FRA is key. If you have, you can work without limit. If not, annual earnings limits apply, with a higher limit in the year you reach FRA and a special rule for the first retirement year. Withheld benefits are temporary and credited back later. Consult the Social Security Administration's website or a financial advisor for personalized guidance.
