Navigating Social Security and Working at 65
Turning 65 often brings questions about balancing work and Social Security benefits. Many people are in a transitional phase, wanting to supplement their retirement income. The key factor is your "full retirement age" (FRA), determined by your birth year. If you're 65 and haven't reached your FRA, the Social Security Administration (SSA) has rules that temporarily withhold a portion of your benefits if your earnings exceed an annual limit.
The Social Security Earnings Test Explained
Two main scenarios for the earnings test apply to workers under their FRA, including many at 65.
Scenario 1: Under FRA for the Entire Year
If you are 65 and your FRA is 66 or 67, you are subject to the standard earnings test. For 2025, this limit is $23,400.
- Benefit Withholding: The SSA withholds $1 in benefits for every $2 you earn over $23,400.
- Example: Earning $25,000 in 2025 is $1,600 over the limit. The SSA withholds $800 ($1,600 / 2) from your benefits.
Scenario 2: Reaching FRA During the Year
If you reach your FRA in the calendar year you turn 65, a higher limit applies. For 2025, this limit is $62,160.
- Important Nuance: Only earnings before your FRA month count toward this limit.
- Benefit Withholding: The SSA withholds $1 for every $3 earned over $62,160 before your FRA month.
- Example: If you reach FRA in August 2025 and earn $63,000 before August, you've exceeded the $62,160 limit by $840. The SSA withholds $280 ($840 / 3) from your benefits.
How Withheld Benefits are Recalculated
Withheld benefits are not lost. The SSA recalculates your monthly benefit when you reach your FRA to account for benefits withheld due to the earnings test. This can result in a higher monthly payment for life, returning the money over time.
Income That Does NOT Affect Your Social Security Benefits
Only wages or self-employment earnings count toward the earnings test. Other income does not impact your benefits.
Income that does not affect benefits:
- Investment income (interest, dividends, capital gains)
- Pensions and other retirement plan distributions
- Annuities
- Military retirement pay
- Veterans benefits
- Other government benefits
- Income from rental properties (unless a real estate professional)
Impact on Your Future Benefits and Taxes
Working at 65 can add to your earnings record, potentially increasing your eventual monthly benefit. The SSA automatically refigures benefits yearly to include higher earnings if they replace a lower year in your 35 highest-earning years.
However, working can make your Social Security benefits taxable. Your 'combined income' determines if you owe federal taxes on benefits. Combined income includes adjusted gross income, non-taxable interest, and half of your Social Security benefits.
Comparison of Earnings Scenarios
| Scenario | Age 65 and Under FRA | Age 65 and Reaching FRA in the Year | After Full Retirement Age |
|---|---|---|---|
| Earnings Limit (2025) | $23,400 | $62,160 (before FRA month) | No Limit |
| Benefit Reduction Rate | $1 for every $2 over the limit | $1 for every $3 over the limit | None |
| Benefits Withheld | Yes (temporarily) | Yes (temporarily, before FRA) | No |
| Recalculation of Benefits | Increased at FRA | Increased at FRA | Not applicable |
Conclusion: Making an Informed Choice
Deciding to work at 65 while collecting Social Security requires careful consideration. If you are under your full retirement age, monitor income to avoid temporary benefit reductions. However, these withheld benefits are not lost and can be repaid later as higher monthly payments. Understanding limits, counted income, and potential tax implications helps you make the best financial decision. Consult the official Social Security Administration website for detailed information.
