The Key Social Security Rule to Know in the Year Before Retirement

If retirement is getting close, you may already be focused on the age when you should claim Social Security. Filing early, waiting until full retirement age, or delaying until 70 can all change the size of your monthly check. But another rule can affect how much money actually reaches your bank account during your last working year.

This lesser-known Social Security rule can reduce benefits if you claim while still earning wages, even if you only work part of the year. It often goes unnoticed until there is little time left to adjust, so learning about it before you file can help you avoid an unwelcome surprise in those first payments.

How the retirement earnings test works

The rule is known as the Social Security retirement earnings test. It applies to people who begin receiving retirement benefits before full retirement age while still working and earning above a set limit.

According to the Social Security Administration, if you are under full retirement age for the entire year, benefits are reduced by $1 for every $2 you earn above the yearly limit. For 2026, that limit is $24,480 a year, or $2,040 a month, based on the agency's 2026 COLA fact sheet.

If you reach full retirement age during the year, a higher limit applies to the months before that birthday. For 2026, that limit is $65,160, and the SSA withholds $1 for every $3 earned above it, counting only earnings from the months before you reach full retirement age. Once you do reach full retirement age, which is 67 for anyone born in 1960 or later, the earnings test no longer applies. After that point, you can earn any amount and still collect your full benefit.

Why many people miss this rule

Social Security claiming age gets a lot of attention, so many people spend years thinking about when to file. The earnings test is different because it matters only in a narrow period: after benefits start but before full retirement age, while work income is still coming in.

For many near-retirees, that period overlaps with their final year or months on the job. Someone may choose to claim at 63 while finishing part-time consulting, or file early while a spouse continues working a bit longer to reach a pension goal. If they do not account for the earnings limit, their first checks may be smaller than the estimate shown in their SSA account.

An example of the reduction

Imagine a worker who turns 63 in 2026 and claims Social Security while continuing to work part-time. If that person is entitled to $1,600 a month, or $19,200 a year, and expects to earn $30,000 from part-time work, that would put earnings $5,520 above the $24,480 annual limit.

Under the earnings test, the SSA would withhold $1 in benefits for every $2 over the limit, which would total $2,760 in withheld benefits for the year. That is a noticeable drop in expected income, although the money is not permanently lost. The SSA says withheld benefits are later factored into a recalculated benefit once full retirement age is reached. Even so, the immediate cash-flow effect can be significant for someone counting on a fixed monthly amount.

The SSA also has a special rule for the first year of retirement. Even if total yearly earnings are above the annual cap, you may still receive a full benefit for any whole month the SSA considers you retired, as long as your earnings for that month stay under the monthly limit and you are not performing substantial self-employment services. This is especially relevant in the year you stop working, which is often the same year you first claim benefits.

What to do before filing

A few steps can help you see how the rule may affect your own situation before you submit a claim.

Estimate your earnings for the claiming year

Add up wages, self-employment income, bonuses, and any other earned income you expect between January and the month you file. Then compare that amount with the applicable earnings limit, depending on whether you will reach full retirement age during that year.

Find out whether you will reach full retirement age that year

The higher $65,160 limit and the less severe $1-for-every-$3 reduction apply only to earnings before the month you reach full retirement age, so the timing of your birthday matters.

Check your my Social Security account

Your online account shows your earnings record and estimated benefits at different claiming ages, which can help you compare possible scenarios.

Think about whether delaying would avoid the test

Waiting to claim until after full retirement age, or until earnings fall, is one option to consider. A financial advisor or the SSA's planning tools can help you weigh the tradeoffs in the context of your full financial situation.

Contact the SSA if your case is complicated

Households with two incomes, self-employment, or irregular bonus pay can make the earnings test harder to estimate. The SSA can be reached at 1-800-772-1213.

The bottom line

The retirement earnings test is not a punishment for continuing to work. Benefits withheld under the rule are generally returned later through a higher monthly payment after full retirement age is reached. But in the short run, it can mean a smaller check than expected during a year when budgets may already be tight because of the move out of full-time work.

Reviewing this rule before filing, instead of after a reduced payment arrives, gives you time to adjust your claiming date, your work schedule, or your expectations while options are still open. With limited time left to build savings after leaving the workforce, a quick calculation in the final working year can help prevent an expensive surprise.

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