Your Full Retirement Age (FRA) is the Key
When it comes to working and receiving Social Security, the most critical factor is your official 'full retirement age' (FRA), not simply turning 65. While many people associate 65 with retirement, the FRA has shifted for younger generations. For anyone born in 1960 or later, your full retirement age is 67. If you were born between 1943 and 1959, your FRA falls between 66 and 66 plus several months. This distinction is vital for understanding how working at 65 can affect your benefits.
The Social Security Earnings Limit Explained
If you have started collecting Social Security retirement benefits and are still under your full retirement age, you are subject to the Social Security earnings test. This test imposes a limit on how much you can earn from work without your benefits being temporarily reduced. For 2025, the earnings limit for those under FRA for the entire year is $23,400. The SSA will deduct $1 from your benefits for every $2 you earn above that limit.
If you reach your full retirement age during 2025, a more generous earnings limit applies for the months before you reach your FRA. In 2025, this limit is $62,160, and the SSA will deduct $1 for every $3 you earn above it. This higher limit is designed to accommodate those who are only working for part of the year before reaching their FRA.
No Limit After Full Retirement Age
This is the most important takeaway for many retirees: Starting with the month you reach your full retirement age, the Social Security earnings limit no longer applies. This means that from that point forward, you can work as many hours as you want, earn any amount of money, and your Social Security benefits will not be reduced. This provides significant flexibility for those who want to continue working, whether part-time or full-time, without penalty.
What if Your Benefits Were Reduced?
If the earnings test caused your benefits to be temporarily withheld, that money is not gone forever. Once you reach your full retirement age, the Social Security Administration will automatically recalculate your monthly benefit to give you credit for the months in which your benefits were withheld. This results in a higher monthly payment for the rest of your life. The effect is similar to if you had simply claimed your benefits later.
The Tax Implications of Working in Retirement
While the hours you work may no longer affect your Social Security benefit amount after you reach your FRA, your earnings can still impact your taxes. The federal government may tax a portion of your Social Security benefits if your combined income (your adjusted gross income, plus non-taxable interest, plus half of your Social Security benefits) exceeds certain thresholds.
- For single filers, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. Above $34,000, up to 85% of your benefits may be taxable.
- For those filing a joint return, if your combined income is between $32,000 and $44,000, up to 50% of your benefits may be taxable. Above $44,000, up to 85% of your benefits may be taxable.
Considerations Beyond Social Security
It is important to remember that Social Security is not the only retirement income source. If you have a private or government pension, your work hours and earnings could impact your pension benefits. For instance, some state government pension plans, like those in New York, may have specific hours or earnings limits if you return to public employment. It is crucial to check with your specific pension plan administrator to understand their unique rules.
Additionally, working can affect your health insurance. If you have access to a group health plan through your employer, it could impact your Medicare enrollment. For most people turning 65, enrolling in Medicare is an important step, and coordination with existing employer coverage needs careful consideration to avoid penalties or gaps in coverage. For more details, consult the official Social Security Administration website.
Comparing Pre- and Post-FRA Work
| Feature | Working Before Full Retirement Age | Working At or After Full Retirement Age |
|---|---|---|
| Hours Limit | No limit on hours, but an earnings limit applies. | No limit on hours. |
| Earnings Limit | Yes, if you exceed the annual earnings limit, benefits are temporarily reduced. | No. |
| Benefit Recalculation | Withheld benefits are added back to your monthly payment starting at FRA. | Not applicable. |
| Benefit Increase | New earnings can boost your average lifetime earnings, potentially increasing your benefit. | Continuing to work can increase your average lifetime earnings, potentially boosting your benefit. |
| Tax Impact | Work income can trigger federal taxes on your Social Security benefits. | Work income can trigger federal taxes on your Social Security benefits. |
| Pension Impact | Check with your specific plan for potential limits or suspensions. | Check with your specific plan for potential limits or suspensions. |
The Final Word
Deciding how many hours to work after you retire at 65 involves evaluating your financial needs, your health, and your personal goals. By understanding the key difference between age 65 and your full retirement age, you can make informed decisions. While the earnings test may seem intimidating, it's a temporary measure with a long-term benefit adjustment. Ultimately, working in retirement offers a path to financial security, social engagement, and personal fulfillment, but careful planning is essential. Consult with a financial advisor and the SSA to ensure you maximize your benefits.
