Retiring? Beware: Working Again Could Cut Your Social Security by $239!
Are you ready to embrace retirement but feeling the financial pinch? You’re not alone! A staggering 75% of workers plan to keep earning during their golden years, as revealed in a recent study. The truth is, retirement can come with hefty price tags, prompting many seniors to clock in at work even after they’ve hit the Social Security jackpot.
But hold on! If you’re thinking about picking up a paycheck while collecting Social Security, you need to be aware of the potential impact on your benefits. On average, retirees who work might see their monthly checks cut by approximately $239. In some cases, if your earnings exceed certain thresholds, you could even face a withholding of most or all of your benefits. So, what can you expect as we head into 2025?
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Will Your Benefits Take a Hit?
Thinking about working after claiming Social Security? If you haven’t hit your full retirement age (FRA), your earnings might just lead to a reduction in benefits due to the retirement earnings test. If you exceed the specified income limits, your benefits could take a serious hit before you reach that magic age.
To get a grip on your potential benefits reduction, you’ll first need to know your exact FRA—this varies based on your birth year, but generally falls between ages 66 and 67.
There are two key income limits to keep in mind: one for those who are far from their FRA in 2025 and another for those who are about to hit that milestone next 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 |
Source: Social Security Administration. Table by author.
According to the Bureau of Labor Statistics, full-time workers aged 65 and older raked in a median salary of about $58,292 in 2024. Let’s say you’re working part-time and earning about half that amount—around $29,146 annually.
If you’re 65 with an FRA of 67, you’ll fall under the lower income limit in this scenario. Your earnings would exceed the limit by $5,746, leading to a reduction in benefits by $2,873 each year, or about $239 monthly.
Silver Linings Ahead!
Yes, the more you earn, the more your benefits could be slashed—potentially to the point where you might lose them entirely. But here’s the bright side: once you reach your FRA, your benefits will be recalculated, and you’ll enjoy larger payouts for the rest of your retirement.
Think about it: the retirement earnings test is structured so that you should eventually recover all the benefits withheld. While those cuts might sting in the short term, they’re just part of a longer game that pays off in the end.
For instance, imagine a retiree whose normal benefit is $1,000 per month. After deductions, their payment could drop to $655 monthly. But once they hit their FRA, they might see their monthly payments bumped up to $1,070. To recover the total $16,560 withheld during four years of work would take 20 years, but ultimately, they’ll receive the same total benefit. However, if you think you might not spend a couple of decades enjoying your retirement, consider whether it makes sense for you.
Is Working in Retirement Worth It?
Overall, the pros of working after claiming Social Security often outweigh the cons. While those initial reductions can be hard to swallow, the income from your job could significantly enhance your overall financial landscape.
Before diving in, take a step back to weigh your goals and desires. Understanding the retirement earnings test will empower you to make the best choices for your future. Is it time to keep working, or is it better to hang up your hat?
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