In case you are contemplating working during retirement, it would be wise to know about how the limits of the Social Security earnings-test are applied to your benefits. The limits are expected to be raised in the year 2025, thus permitting higher earnings without forgoing any Social Security benefits. Here is all you need to understand regarding these limits and how it works, along with how it will be helpful if you wish to keep working while collecting Social Security.
What is the Social Security earnings-test limit?
The Social Security earnings-test limit is the amount of income you can earn from a job before a portion of your Social Security benefits is withheld. This limit is only relevant if you have not attained the full retirement age (FRA) yet. After attaining FRA, you may earn any amount you desire without affecting your social security payments.
As for individuals who will attain FRA in 2025, they have a higher threshold which means they have greater capacity of earning. So even if a portion of benefit is withheld prior to the full retirement age, that is not for lifetime – when one turns FRA, all the benefits that were withdrawn are returned within a certain period.
What are the 2025 earnings-test limits?
Starting in 2025, the Social Security earnings-test limit will be increased. Here are the two main thresholds for 2025:
- Under Full Retirement Age (FRA): If you have not reached your FRA by 2025, you can earn up to $23,400 before any benefits are withheld. For every $2 you earn above this limit, $1 in Social Security benefits will be withheld.
- Reaching Full Retirement Age in 2025: For those who will reach FRA during the year, the earnings limit is higher – $62,160 annually. In this case, for every $3 earned above this limit, $1 in Social Security benefits will be withheld.
READ: What counts as earnings for a Social Security Earnings Test?
Example scenario for maximizing earnings with minimal withholding
Let’s say you are 64 and earning close to $23,400 in 2025. Staying below this limit means that no benefits are withheld. If you exceed the limit by, for example, earning $30,000, here is how it would work:
- You exceed the limit by $6,600 ($30,000 – $23,400).
- The Social Security Administration would withhold $1 in benefits for every $2 over the limit, so $3,300 would be withheld from your benefits.
For those reaching FRA, you have more flexibility with an earnings limit of $62,160. Exceeding that amount would mean $1 withheld for every $3, offering more room for higher earnings while keeping withheld benefits manageable.
Why consider working part-time in retirement?
Many people find that working part-time in retirement provides significant benefits beyond financial gain. Here are a few reasons you might want to consider working while receiving Social Security:
- Extra income: Social Security benefits alone may not cover all your expenses or allow you the flexibility to enjoy retirement fully. A part-time job can provide a cushion.
- Social interaction: Staying engaged in a work environment helps many retirees stay socially connected, which is beneficial for mental health.
- Purpose and routine: Some people thrive with a routine and enjoy the sense of purpose that comes from continuing to contribute to their field or community.
Planning for retirement income without losing benefits
Working in retirement can be beneficial, but planning is crucial to avoid unexpected withholding of benefits. Here is what you can do to prepare:
- Track your earnings: Knowing where you stand with the earnings-test limit helps you avoid unplanned withholdings.
- Understand how FRA impacts you: Once you reach FRA, the earnings-test limits are no longer a factor, allowing you to work and earn freely.
Working while collecting Social Security is possible, and with the right strategy, you can maximize both your income and benefits as you transition into retirement.
