There have been numerous inquiries regarding Social Security recently, yet it remains a crucial income source for nearly 52 million Americans receiving retired workers’ benefits as of January’s end. Regardless of how much retirement income Social Security constitutes, claiming benefits does not necessitate ceasing work. For individuals at or beyond their full retirement age (FRA)—when they are eligible to receive their primary insurance amount (PIA)—it is possible to claim benefits and work without limitations.
However, for those who claim benefits before their FRA and continue to work, earning above a specified threshold triggers the Social Security retirement earnings test (RET). Understanding this process can aid in maximizing earnings while minimizing penalties.
In 2025, the earnings limit for individuals not reaching FRA is set at $23,400. Surpassing this amount results in a reduction of annual benefits by $1 for every $2 earned over the limit. For instance, earning $28,400 would lead to a $2,500 benefits reduction. For those reaching FRA in 2025, the limit increases significantly to $62,160, with benefits reduced by $1 for every $3 earned beyond this amount. Earnings beyond or during the FRA month are not included in the RET calculation. The national average wage index (NAWI) is used by Social Security to adjust annual limits. If NAWI remains unchanged, the limits are not adjusted, as seen in specific years such as 2015-2016 and 2009-2011.
It’s crucial to be aware of the RET income limit changes annually to avoid surprises. Although reduced benefits due to the RET are not ideal, they are not permanently lost. After reaching FRA, Social Security recalculates benefits, reinstating the withheld amounts over time. For example, assuming an FRA of 67 with benefits claimed at 65 and exceeding the RET limit, a reduction of $2,000 per year might lead to $4,000 being withheld over two years. Upon turning 67, benefits are recalculated to adjust for the withheld months, increasing future payments.
In certain scenarios, earning above the RET limit may be advantageous if the reduced benefits do not impact one’s financial stability. Additionally, working can offer personal benefits such as maintaining an active lifestyle, social engagement, and a sense of purpose. Ideally, work during retirement should be voluntary; however, understanding how the Social Security RET functions is essential for making informed decisions regarding early benefit claims while working.