Understanding the Social Security Earnings Test at 65
The Social Security Administration (SSA) implements an earnings test that can temporarily reduce retirement benefits if you earn above a specific limit while still considered to be under your full retirement age (FRA). For many people collecting benefits at age 65, this test still applies. The rules change significantly in the calendar year you reach your FRA, and vanish entirely beginning with the month you hit that milestone. The key is knowing your specific FRA, which is determined by your birth year.
The Critical Role of Your Full Retirement Age (FRA)
For anyone born in 1960 or later, the FRA for retirement benefits is 67. If you were born before 1960, your FRA is slightly earlier. This means if you start drawing Social Security at 65, you are considered an "early" claimant, and your benefits are subject to the earnings test.
- Before FRA: Benefits are temporarily reduced based on earned income above the annual limit.
- In the year you reach FRA: A higher earnings limit applies for the months leading up to your birthday month. The reduction rate is also more lenient.
- At or after FRA: The earnings test no longer applies, and you can earn any amount of money without a temporary reduction in your benefits.
Earnings Limits for 2025
For 2025, the SSA has set specific earnings limits that determine if your benefits will be affected. These figures are important for financial planning:
- Under FRA all year (e.g., age 65): The annual earnings limit is $23,400. The SSA will deduct $1 from your benefits for every $2 you earn over this limit.
- Reaching FRA in 2025: A higher limit of $62,160 applies, but only to earnings from January up to the month you reach FRA. The SSA will deduct $1 for every $3 you earn above this limit during that period.
What Happens When You Exceed the Earnings Limit
If your earnings exceed the specified limit, the SSA will withhold your benefits until the excess earnings are offset. It is important to remember that these withheld benefits are not permanently lost. Once you reach your FRA, the SSA will recalculate your benefit amount, giving you credit for the months in which benefits were withheld. This results in a higher monthly benefit payment for the rest of your life. The increase accounts for the months you did not receive benefits due to the earnings test, essentially treating you as if you claimed your benefits later.
For example, if you claim early at 65 and have 12 months of benefits withheld due to high earnings, the SSA will adjust your benefit upward when you reach FRA. Your benefit will reflect a smaller early retirement reduction, increasing your monthly payments moving forward.
Can Working at 65 Increase Your Benefits?
Yes, working while collecting Social Security can potentially increase your future monthly benefit. The SSA calculates your benefit based on your 35 highest-earning years. If you work at 65 and earn more than you did in one of those 35 years (often an earlier, lower-earning year), that new, higher-earning year will be factored into the calculation. This can lead to an automatic increase in your monthly benefit payment. The SSA performs this review and recalculation automatically each year.
Working at 65: What Counts as Income?
It is vital to understand which types of income are subject to the Social Security earnings test. The test only applies to "earned income"—that is, wages from a job or net earnings from self-employment.
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Counted Income:
- Wages from employment
- Bonuses and commissions
- Net earnings from self-employment
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Not Counted Income:
- Pensions and annuities
- Investment income (e.g., interest, dividends)
- Capital gains
- IRA withdrawals or 401(k) distributions
- Government or military retirement benefits
Comparison of Earnings Rules
| Age Group | Annual Earnings Limit (2025) | Benefit Withholding Rule | How Withheld Benefits Are Affected |
|---|---|---|---|
| Under Full Retirement Age | $23,400 | $1 withheld for every $2 over the limit | Added back to lifetime monthly benefits at FRA |
| In Year of Full Retirement Age | $62,160 (for months before FRA) | $1 withheld for every $3 over the limit | Added back to lifetime monthly benefits at FRA |
| At or After Full Retirement Age | No Limit | No benefits withheld | All benefits received in full |
Planning Your Retirement Income at Age 65
For most people today, claiming Social Security at 65 while still working means accepting the possibility of a temporary benefit reduction due to the earnings test. The most strategic approach depends on your specific financial situation and retirement goals. If you need the income immediately, accepting the reduction and knowing it will be recouped later via a higher monthly payment is a viable option. If you can afford to, waiting until your FRA to claim Social Security, and continuing to work, allows you to earn an unlimited income without affecting your benefits.
Ultimately, the decision of when to claim benefits while continuing to work involves weighing your need for immediate income against the potential for higher future payments. The SSA's website provides additional resources for those considering this decision, and it is a valuable tool for understanding the full implications of your choices Social Security Administration. Consulting with a financial advisor can also help you understand how your combined income, including Social Security, will affect your overall tax liability.
