For many people, retiring at the earliest possible age of 62 seems like an attractive option. The ability to collect Social Security benefits while continuing to work part-time can provide a valuable income bridge. However, the Social Security Administration (SSA) enforces an 'earnings test' that can temporarily reduce your benefits if you earn too much before you reach your full retirement age (FRA). For those turning 62 in 2025, it is crucial to understand this limit and how it affects your financial plan.
The 2025 Earnings Limit for Early Claimers
If you are under your full retirement age for the entire year of 2025, the annual earnings limit is $23,400. The Social Security Administration will deduct $1 from your benefits for every $2 you earn above this limit. This means that if you earn more than $23,400 from wages or self-employment, your Social Security checks will be smaller for the rest of the year. For instance, if you earn $25,400 in 2025, you are $2,000 over the limit. The SSA will deduct $1,000 from your total annual benefits ($1 for every $2 over the limit).
It is important to note that only your earned income from a job or self-employment is counted toward this limit. Other forms of income, such as investment income, pensions, and annuities, do not affect your Social Security payments.
Withheld Benefits Are Not Lost
One common misconception is that any benefits withheld because of the earnings test are gone forever. In reality, this is not the case. The SSA keeps a record of the benefits it temporarily withholds. Once you reach your full retirement age, the SSA recalculates your monthly benefit to credit you for the months it reduced or held your benefits. This adjustment will permanently increase your monthly payment for the rest of your life.
For example, if you had several years of benefits withheld due to high earnings in your early 60s, your monthly benefit at age 67 (if your FRA is 67) will be higher than it would have been if you had not had those benefits withheld. This acts as a deferred payment system, not a penalty.
How Your Age Affects the Earnings Test
The way the earnings test is applied changes depending on where you are relative to your full retirement age. For those who turn 62 in 2025, you will be under your FRA for the entire year, and the $23,400 annual limit applies. The rules change in the year you actually reach your FRA.
Comparison of Earnings Test Rules
| Age Status in 2025 | Annual Earnings Limit | Benefits Withholding Rate | When Does Withholding Stop? |
|---|---|---|---|
| Under Full Retirement Age (e.g., age 62) | $23,400 | $1 is deducted for every $2 earned above the limit. | At the end of the year. The higher benefit recalculation begins at full retirement age. |
| Reaching Full Retirement Age in 2025 | $62,160 | $1 is deducted for every $3 earned above the limit. | Withholding stops in the month you reach your full retirement age. |
| At or Over Full Retirement Age | No limit | No benefits are withheld, regardless of earnings. | Does not apply. |
The Special Monthly Earnings Rule
For the first year you collect benefits, there is a special rule that can help if you retire mid-year after having already earned more than the annual limit. This rule allows you to receive a full Social Security check for any full month the SSA considers you retired, regardless of your total yearly earnings. For 2025, a month is considered a 'retirement month' if you earn $1,950 or less and do not perform substantial services in self-employment. This can be a key advantage for those who decide to retire later in the year after a period of higher-paying work.
How Working Can Increase Your Future Benefits
Not only do you get credited for withheld benefits once you reach your FRA, but continuing to work can also increase your monthly benefit amount in two ways. First, by working, you continue to pay Social Security taxes. The SSA reviews your earnings record annually. If your latest year of earnings is one of your top 35 earning years (the number of years used to calculate your benefit), your monthly payment will be automatically recalculated and increased. Second, the delayed retirement credits you earn for months benefits were withheld before your FRA will permanently increase your monthly payment once you reach your FRA.
Taxation of Benefits
In addition to the earnings test, it is important to remember that your Social Security benefits might be subject to federal income tax, depending on your combined income. Combined income includes your adjusted gross income, tax-exempt interest income, and half of your Social Security benefits. If you file as an individual and 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% could be taxed.
The Decision at 62
Beginning Social Security benefits at age 62 is a significant financial decision with both benefits and drawbacks. On one hand, you start receiving income earlier, which can be useful for immediate expenses. On the other, the monthly benefit will be permanently reduced compared to what you would receive at your full retirement age, and if you plan to continue working, your earnings may cause a temporary reduction in payments. The decision should be based on your individual financial situation, health, and retirement goals. Consulting with a financial advisor and using the SSA's tools can provide clarity on the best path forward.
Conclusion
For an individual at age 62 in 2025, you can earn up to $23,400 without any reduction in your Social Security benefits. Earnings above this limit will cause a temporary reduction in benefits, with $1 withheld for every $2 earned over the threshold. It is crucial to remember that these withheld benefits are not lost but are credited back to you in the form of a higher monthly payment once you reach your full retirement age. Furthermore, continuing to work can boost your benefit calculation if your recent earnings are higher than a previous year in your top 35. By understanding these rules and planning accordingly, you can navigate working in early retirement effectively.
