Social Security’s Earnings Test Will Affect Workers Above $25,560 in 2027, Cutting Benefits by 50 Cents for Each Extra Dollar

Returning to work can help make up for a modest Social Security check, but an earnings test may reduce that payment when it matters most. It’s important to know which earnings count and which types of income do not.

There are plenty of retirees who believe they can get by on Social Security alone, only to find that doing so is much harder than expected. The average monthly benefit is about $2,090, which works out to roughly $25,000 a year — not much room for everyday expenses.

If your benefits aren’t enough to cover your bills, you might choose to take a job again. That could be a part-time schedule, weekend work, or income from the gig economy.

The upside is that you are permitted to work while receiving Social Security benefits. The downside is that if you have not yet reached full retirement age, the earnings limit can reduce your payments. In some cases, it can even withhold all of them.

How the earnings rule works

The Social Security earnings test applies only to people who work before reaching full retirement age. Once you reach that milestone, you may earn any amount from work without seeing benefits withheld.

The limit changes from year to year. In 2027, if you are under full retirement age and will not reach it by the end of the year, the earnings-test limit is $25,560. For every dollar earned above that amount, 50 cents in benefits will be withheld.

That does not mean the money is gone forever. After you reach full retirement age, the Social Security Administration recalculates your benefit and raises your monthly checks to account for what was previously withheld.

Still, your payments may be smaller in the short run, which can make it harder to pay monthly expenses. It can also lessen the value of going back to work, at least temporarily. That is why it helps to understand the rule before you earn beyond the limit.

How to avoid being caught off guard

The earnings test can create financial problems if you are not prepared for it. But once you know the threshold, it becomes much easier to manage.

For example, if you receive $25,000 a year in Social Security and need to add $1,000 a month to stay comfortable, you would not have to worry about having benefits withheld. Even if your work income ends up being double that amount, you would still remain within the limit.

It is also worth remembering that only wages from work count toward the Social Security earnings-test limit. Money you take from savings, as well as investment income such as interest or dividends, does not count toward the $25,560 threshold in 2027.

That gives retirees a useful way to diversify income. Doing so may help make retirement more comfortable and reduce financial pressure.