Retirement can be costly, leading many older adults to seek work in their later years. According to a 2024 report from the Employee Benefit Research Institute, around 75% of workers plan to earn money during retirement.
However, continuing to work while receiving Social Security may impact your benefits. On average, working retirees might see their payments reduced by roughly $239 each month. Depending on income levels, some retirees could experience significant reductions or even complete withholding of their benefits. Here’s what to keep in mind as you approach 2025.
Understanding Benefit Cuts while Working after 62
If you earn an income after starting to collect Social Security before reaching your full retirement age (FRA), your earnings will be assessed under the retirement earnings test. Earnings exceeding certain thresholds can lead to reductions in your benefits leading up to your FRA.
To evaluate if your benefits will be cut, you’ll need to identify your FRA—determined by your birth year—which is between ages 66 and 67 for most individuals.
There are two key income limits: one for those a year or more away from FRA and another for those reaching FRA in 2025.
| Age | Income Limit in 2025 | Benefit Reduction |
|---|---|---|
| Under FRA in 2025 | $23,400 per year | $1 reduction for every $2 earned over the limit |
| Will reach FRA in 2025 | $62,160 per year | $1 reduction for every $3 earned over the limit |
Source: Social Security Administration. Table by author.
In 2024, full-time workers aged 65 and older had a median annual wage of about $58,292, as reported by the Bureau of Labor Statistics. For example, if you work part-time in retirement earning $29,146 yearly, you would be affected by the stricter income limit since you are 65 and won’t reach FRA until age 67. This would mean your income exceeds the limit by $5,746, resulting in a reduction of your benefits by $2,873 annually—approximately $239 per month.
A Positive Outlook: Recalibration of Benefits
As a retiree, the more income you generate, the more substantial the potential cuts to your benefits. In extreme cases, you could see your entire benefit amount withheld. However, there’s an upside: once you reach your FRA, your benefits will be recalculated, leading to increased monthly payments for life.
The retirement earnings test allows for recouping these withheld benefits over time. Although reductions can be steep initially, retirees should ultimately receive what was lost, assuming they enjoy a long-lasting retirement.
For instance, a retiree with a standard benefit of $1,000 per month could see their payment dip to $655 due to earnings test reductions. Once they reach their FRA, their payments would increase to $1,070 each month. Over four years, a total of $16,560 might be withheld, which would take 20 years of receiving larger payments to fully recoup. If a retiree expects to spend fewer years in retirement, they might not regain the withheld amounts.
Evaluating the Worth of Working in Retirement
In general, the benefits of continuing to work after starting Social Security tend to outweigh the drawbacks. Although short-term reductions in payments can be noticeable, the income from employment could significantly impact your finances.
Individuals should carefully consider their personal goals and circumstances when deciding on work in retirement. Being informed about potential earnings test impacts can help you choose whether continuing to work is a beneficial option while receiving Social Security benefits.
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