Understanding Retirement Income Rules for 2025
Many retirees choose to continue working part-time or even start a new business. A common question that arises is, "How much money are you allowed to make when retired without it negatively impacting your Social Security benefits?" The answer depends entirely on your age relative to the Social Security Administration's (SSA) definition of "full retirement age" (FRA).
For those born in 1960 or later, the full retirement age is 67. If you were born between 1943 and 1954, your FRA is 66, with the age gradually increasing for birth years in between. Once you reach your FRA, you can earn any amount of money from work, and it will not reduce your Social Security retirement benefits.
The Social Security Earnings Test: Before Full Retirement Age
If you decide to claim Social Security benefits early (as early as age 62) and continue to work, your earnings will be subject to an annual "retirement earnings test." This test sets a limit on how much you can earn before the SSA temporarily withholds a portion of your benefits.
Rule 1: If You Are Under Full Retirement Age for the Entire Year
For the entire year of 2025, if you are younger than your full retirement age, the annual earnings limit is $23,400 [2, 3].
- How it works: For every $2 you earn above this $23,400 limit, the SSA will deduct $1 from your benefit payments [2, 3].
Rule 2: In the Year You Reach Full Retirement Age
A more generous rule applies during the calendar year in which you will reach your FRA.
For 2025, the earnings limit in the months leading up to your FRA is $62,160 [2, 3].
- How it works: In this scenario, the SSA only counts the earnings you make in the months before the month you reach FRA. For every $3 you earn above this $62,160 limit, the SSA will deduct $1 from your benefits [2, 3]. Starting in the month you reach FRA, the earnings limit disappears entirely, regardless of how much you earn for the rest of the year [1].
What Kind of Income Counts Toward the Limit?
It is crucial to understand what the SSA considers "earnings" for this test. The limits only apply to income from work, such as wages from a job or net earnings from self-employment [1, 3].
Income that DOES NOT count towards the earnings limit includes:
- Pensions and other retirement benefits (401(k)s, IRAs) [1]
- Investment income (interest, dividends, capital gains)
- Annuities
- Government benefits like Veterans benefits [1]
This means you can have significant income from investments and pensions without it affecting your Social Security benefits under the earnings test [1].
Comparison of Earnings Rules
To simplify, here is a direct comparison of the rules:
| Age Relative to FRA | 2025 Annual Earnings Limit | Benefit Withholding Rate | Income Sources Counted |
|---|---|---|---|
| Under FRA (all year) | $23,400 [2] | $1 for every $2 over limit [2, 3] | Wages & Net Self-Employment [1, 3] |
| Year of Reaching FRA | $62,160 (in months before FRA) [2] | $1 for every $3 over limit [2, 3] | Wages & Net Self-Employment [1, 3] |
| At and After FRA | No Limit [1] | $0 (no withholding) [1] | N/A |
Is Withheld Money Lost Forever?
No. Any benefits that are withheld because you exceeded the earnings limit are not permanently lost [3]. When you reach your full retirement age, the Social Security Administration will recalculate your benefit amount [3]. They will give you credit for the months in which benefits were withheld, which results in a higher monthly payment for the rest of your life [3].
Taxation of Social Security Benefits
Working in retirement can also affect whether your Social Security benefits are taxed. This is based on your "combined income," also known as provisional income [5].
Combined Income = Your Adjusted Gross Income (AGI) + Nontaxable Interest + Half of Your Social Security Benefits [5]
Taxation thresholds for 2025 remain the same as 2024:
- Individual Filers: Combined income between $25,000 and $34,000 may result in up to 50% of benefits being taxable. Over $34,000, up to 85% may be taxable [5].
- Married Filing Jointly: Combined income between $32,000 and $44,000 may result in up to 50% of benefits being taxable. Over $44,000, up to 85% may be taxable [5].
Conclusion: Plan Your Retirement Work Strategy
Understanding how much money you are allowed to make when retired is a key part of financial planning [1]. The most important factor is your full retirement age [1]. Once you reach this milestone, you can earn as much as you like with no impact on your Social Security payments [1]. Before FRA, you must be mindful of the annual earnings limits for 2025 to avoid unexpected benefit reductions [2, 3]. Remember that these reductions are temporary and will be credited back to you over the long term [3]. For more personalized information, you can always visit the official Social Security Administration website [1].
