Retirement can be a costly phase of life, prompting many older adults to keep working even after stepping away from full-time careers. In fact, a substantial 75% of workers anticipate continuing to work for pay during their retirement years, as noted in a 2024 report by the Employee Benefit Research Institute.
Nevertheless, holding a job while drawing Social Security benefits can impact the amount you receive. On average, retirees who work might see their monthly checks shrink by approximately $239, and depending on your income level, you could face further reductions. Here’s a glimpse of what you can expect as 2025 approaches.
Image caption: A senior couple at home, reviewing paperwork with a calculator.
Understanding Potential Benefit Reductions in Retirement
If you’re collecting Social Security and earning income after retiring, but haven’t reached your full retirement age (FRA), you’ll be subject to the retirement earnings-test income limit. Surpassing this threshold means you’ll see a dip in your benefits until you reach your FRA.
To figure out if your benefits will be reduced, you’ll need to identify your specific FRA and your annual income. Your FRA, which is determined by your birth year, usually falls between 66 and 67 years of age.
There are two distinct income limits: one for individuals well below their FRA in 2025 and another for those who will reach their FRA within that year.
| 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 |
According to the Bureau of Labor Statistics, in 2024, full-time workers aged 65 and above earned a median of about $58,292 annually. Suppose you’re only working part-time and making half that amount, or $29,146 each year.
Assume you’re 65 with an FRA of 67. Under these circumstances, you’re subject to the lower income limit since you won’t hit your FRA by 2025. Thus, you would exceed the annual cap by $5,746, leading to an annual benefit reduction of $2,873, or around $239 monthly.
A Positive Aspect to Consider
Sure, the more you earn during retirement, the more significantly your benefits might be reduced. In extreme situations, you could have your entire benefit withheld. Here’s the silver lining: once you reach your FRA, your benefit is recalculated, and you’ll start receiving larger payments indefinitely.
The concept behind the retirement-earnings test is that, theoretically, you’ll eventually regain all the withheld benefits. Although the short-term cuts may be tough, you’re not actually losing out in the long run if you spend many years in retirement.
The Social Security Administration provides an example where a retiree with a standard $1,000 monthly benefit sees their payment drop to just $655 due to earnings-test reductions. At their FRA, they start receiving $1,070 monthly. To recuperate the $16,560 withheld over four working years, it would take about 20 years of receiving these adjusted payments. Thus, while the totals even out, those who may not spend decades in retirement might not recoup all withheld benefits.
Weighing the Worth of Working During Retirement
Generally, the benefits of working after starting Social Security outweigh the drawbacks. Though temporary cuts to your benefit can be painful, the extra income from employment often has a more significant positive impact on your financial picture than the deductions.
However, it’s crucial to weigh your personal goals and circumstances to make the most informed choice. Being aware of what the retirement-earnings test entails helps you decide whether continuing to work while receiving Social Security fits your situation.
