The Full Retirement Age Is Key, Not Your Retirement Age
Many people mistakenly assume their full retirement age (FRA) is 65. However, this is only true for those born in 1937 or earlier. The Social Security Administration (SSA) gradually increased the FRA based on the year of birth. For those born in 1960 or later, the FRA is 67. This means if you are 65 and born in or after 1960, you are still considered to be taking benefits early and are subject to the earnings test.
Navigating the Earnings Limit If You Retire Before Your Full Retirement Age
If you retire at 65 and are still under your full retirement age, you are subject to the Social Security earnings limit for the entire year. For 2025, if you are under your FRA for the whole year, the limit is $23,400. If your earnings exceed this amount, the SSA will deduct $1 from your benefits for every $2 you earn over the limit. This deduction is temporary, and the benefits are not lost forever.
For example, if you earn $25,000 in 2025, you are $1,600 over the limit. The SSA will withhold $800 from your total annual benefits ($1 for every $2 earned over the limit). You must inform the SSA of your estimated earnings to avoid overpayment penalties. If your earnings will be different from your estimate, you should let them know right away.
What Happens in the Year You Reach Full Retirement Age
In the calendar year you reach your full retirement age, the rules are more generous, though still restrictive for the months leading up to your birthday. For 2025, a separate earnings limit of $62,160 applies to earnings made before the month you reach your FRA. For every $3 you earn over this limit, the SSA will deduct $1 from your benefits.
For instance, if your FRA is 67 and you turn 67 in August 2025, the $62,160 limit applies to your earnings from January to July. Earnings from August onward are not subject to any limit.
Once You Reach Full Retirement Age, the Limits Disappear
Starting with the month you reach your full retirement age, the earnings test no longer applies. At this point, you can earn any amount of money from a job or self-employment without it impacting your Social Security benefits. Your benefits will not be reduced, no matter how much you earn. Furthermore, any benefits that were temporarily withheld due to the earnings test prior to your FRA are recalculated to provide a permanently higher monthly payment.
What Counts as "Earnings"?
Not all income affects your Social Security benefits under the earnings test. The SSA considers wages from a job or net earnings from self-employment as countable income. This does not include income from other sources, such as:
- Pensions and other retirement payments
- Investment income (e.g., dividends, interest, capital gains)
- Government benefits (e.g., Veterans Benefits)
A Note on the First Year of Retirement: The Monthly Earnings Test
If you retire mid-year, you may be able to utilize a special rule for the first year of retirement to receive benefits for some months, even if your total annual earnings are over the limit. This is known as the Monthly Earnings Test. For a month to be considered a retirement month, your earnings must be below a certain monthly threshold ($1,950 in 2025 if under FRA) and you must not have performed substantial services in self-employment. This special rule is typically only used for the first year of receiving benefits.
How Benefits Withheld are Recouped
If your Social Security benefits were reduced due to the earnings test, the money is not lost. The SSA keeps a record of the months that benefits were withheld. When you reach your FRA, the SSA recalculates your monthly benefit amount to account for these withheld payments. This results in a higher monthly benefit for the rest of your life, effectively giving you back the withheld funds over time.
Comparison of Social Security Earnings Limits (2025)
| Category | Annual Limit (2025) | Benefit Reduction | Notes |
|---|---|---|---|
| Under FRA All Year | $23,400 | $1 for every $2 over the limit | All earnings count |
| Reaching FRA in 2025 | $62,160 | $1 for every $3 over the limit | Only earnings before FRA month count |
| At or Over FRA | No Limit | No Reduction | Applies from the month of your birthday onward |
Conclusion: Planning for a Financially Healthy Retirement
Retiring at age 65 requires careful financial planning, especially regarding Social Security benefits. The key takeaway is that if you were born in 1960 or later, you will have an earnings limit until you reach age 67. Understanding this and your specific Full Retirement Age is essential for managing your retirement finances. By knowing the rules, you can make informed decisions about working during your first years of retirement, ensuring a smoother transition and more financial stability.
For more information on these rules and to use their earnings calculator, visit the Social Security Administration website.
