Retirement can be costly, and many older adults choose to keep working after retiring. According to a 2024 report by the Employee Benefit Research Institute, 75% of workers anticipate working for pay in retirement. While this can bolster your financial stability, it’s essential to know how earning an income may impact your Social Security benefits. The average retiree working part-time could face reductions of around $239 per month in their Social Security checks. Here’s what you need to know heading into 2025.
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Benefit Reductions
If you’re working while collecting Social Security and you haven’t reached your full retirement age (FRA), your income is subject to the retirement earnings test. This means exceeding certain income thresholds could lead to benefit reductions. Your FRA depends on your birth year, typically between ages 66 and 67.
Two income limits apply in 2025: one for those under FRA and another for those reaching FRA within the year.
Table:
| Age | Income Limit | 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 |
Example Calculation
Imagine you’re 65 with an FRA of 67 and earn $29,146 annually while working part-time. This income exceeds the $23,400 limit by $5,746. Based on the $1-for-$2 reduction rule, your Social Security benefits would decrease by $2,873 per year, or approximately $239 per month.
Median Earnings
According to 2024 Bureau of Labor Statistics data, full-time workers aged 65 and older earned a median wage of $58,292 annually. If you’re earning near this median while still under FRA, your benefit reductions could be substantial.
Benefit Recalculation
While the earnings test might reduce your Social Security checks in the short term, there’s a bright side. Once you reach FRA, your benefits are recalculated to account for withheld amounts. This adjustment results in permanently larger payments.
For example, a retiree whose benefit is reduced from $1,000 to $655 per month due to earnings-test reductions will receive recalculated checks of $1,070 per month at FRA. Though it may take years to recoup the withheld benefits, the system is designed so that you theoretically break even if you spend sufficient time in retirement.
Is Working Worth It?
Deciding whether to work while receiving Social Security depends on your goals and circumstances. While the immediate benefit reductions might sting, the extra income from a job can significantly improve your overall financial picture. Weighing the short-term sacrifices against long-term gains is key to making an informed decision.
Maximize Benefits
If working in retirement appeals to you, there are ways to minimize the impact of benefit reductions:
- Track Your Income: Stay below the earnings limit to avoid reductions.
- Delay Benefits: Consider postponing Social Security to FRA or beyond.
- Consult a Financial Advisor: Tailor a strategy to your unique situation.
With careful planning, you can enjoy the benefits of working while maximizing your Social Security.
FAQs
What is the earnings limit for 2025?
Under FRA, it’s $23,400; reaching FRA, it’s $62,160.
How much are benefits reduced?
$1 for every $2 over the limit (under FRA); $1 for $3 (reaching FRA).
What happens at full retirement age?
Benefits are recalculated to include withheld amounts, increasing payments.
Can I avoid benefit reductions?
Yes, by staying under the earnings limit or delaying benefits.
Is working in retirement worth it?
Often, yes; income earned may outweigh short-term reductions.
