“Unretiring” is becoming a popular trend in the retirement community, as many older adults go back to work after leaving their careers. Around 20% of retirees are working either full- or part-time, according to a 2024 survey from investment management firm T. Rowe Price, while 7% say they’re currently looking for employment.
While 45% of those working in retirement are doing so for personal reasons, like being part of a social group, a greater percentage (48%) are back at work for financial reasons.
If you’ve recently retired and claimed Social Security benefits, you can still go back to work. However, in some situations, you could face hefty benefit reductions thanks to this one Social Security rule. Here’s everything you need to know.
What is the retirement earnings test?
Depending on your age and wages, your benefits could be partially or even fully withheld if you’re receiving earned income from a job.
The retirement earnings test is an income limit that will determine whether your benefits will be withheld and, if so, how much your checks will be reduced. This limit only affects those under full retirement age (FRA), which is age 67 for everyone born in 1960 or later. If you’re already past this age, you don’t need to worry about these reductions, no matter your income.
If you will not reach your FRA in 2025, your benefits will be reduced by $1 for every $2 you earn over the limit of $23,400 per year. You’ll face a different limit of $62,160 in the months leading up to your FRA if you will reach that age next year, and you’ll have $1 withheld for every $3 over that limit.
|
Age |
Income Limit |
Benefit Reduction |
|---|---|---|
|
If you will not reach your FRA in 2025 |
$23,400 per year |
$1 reduction for every $2 over the limit |
|
If you will reach your FRA in 2025 |
$62,160 per year |
$1 reduction for every $3 over the limit |
Data source: Social Security Administration.
Depending on your earnings, you could potentially face some steep reductions. Say, for example, you’re 62 years old with an FRA of 67, and you’re still working full-time earning $50,000 per year.
In this case, you won’t reach your FRA next year, so your income will be subject to the $23,400 annual limit. Your wages are $26,600 over the limit, which means your benefit will be reduced by $13,300 per year, or $1,108 per month.
Fortunately, these reductions don’t last forever. The Social Security Administration will recalculate your benefit at your FRA, factoring in these withholdings. You’ll then start receiving a larger payment to account for all the money that was withheld due to your income.
Is it worth it to work in retirement?
Despite the potentially steep benefit reductions, it’s often still worthwhile for many people to continue working after taking Social Security. These withholdings can sting in the short term, but they’ll earn you larger checks for the rest of your life once you reach your FRA.
The major drawback, though, is that you may not be able to rely as much on Social Security in the years leading up to your FRA. If you’re already collecting benefits and need an extra source of income, going back to work may not pay off as much as you expect if your Social Security checks are slashed substantially.
If you have the option, it may be worthwhile to consider withdrawing your application and delaying benefits instead. You can reverse your decision within 12 months of filing, but you will need to pay back all the benefits you’ve already received. After that, though, you can file again whenever you choose.
Working in retirement can be a smart way to boost your income, but it can impact your Social Security in unexpected ways. By understanding how your wages will affect your benefit amount, it will be easier to make the best decision for your situation.
