The Social Security Earnings Cap of $65,160 That Applies Only in Your Full Retirement Age Year

Quick Read

• Workers who reach full retirement age by the end of the year can earn as much as $65,160 before any Social Security benefits are withheld, compared with $24,480 for everyone else.

• Once earnings rise above that level, Social Security withholds $1 for every $3 earned, which is less severe than the $1-for-$2 rule that applies to younger claimants.

• Any withheld benefits are later paid back through larger checks at full retirement age, while claiming early permanently lowers monthly payments, a more serious long-term drawback.

Many people approaching full retirement age, or FRA, are ready to leave the workforce. For Social Security, FRA is 67 for those born in 1960 or later. But retirement does not always happen right away.

Some people keep working because they enjoy their jobs. Others stay employed because they want to add to their savings and reduce how much they depend on Social Security later in life.

You can work while receiving Social Security, and you may claim benefits before reaching FRA. In fact, you can file as early as age 62.

Still, if you are working while collecting benefits before FRA, you need to keep Social Security's earnings limit in mind.

How work can affect your benefits

Although you are allowed to work and collect Social Security at the same time, doing so before FRA means you are subject to an earnings test. If your wages go over the applicable limit, which can change from year to year, part of your benefits may be withheld for a time.

For workers who will not reach FRA by the end of the year, the earnings test limit is $24,480. Above that amount, Social Security withholds $1 for every $2 earned.

That leaves relatively little room to bring in income without seeing a temporary reduction in benefits. But the rules are more forgiving for people who will reach FRA during the year.

If you reach FRA by the end of the year, you can earn up to $65,160 without losing any Social Security benefits temporarily. Only earnings above that amount trigger withholding.

Even then, the penalty is lighter. For income over $65,160, Social Security withholds $1 for every $3 earned, which is better than the $1-for-$2 rule for people who are farther from FRA.

Withheld benefits are not gone for good

If your benefits are withheld because of the earnings test, that money is not permanently lost. Once you reach FRA, you should get it back in the form of larger monthly checks.

And once you hit FRA, the earnings test no longer applies to you. If you are still working after that point, you can earn any amount and still receive your full monthly Social Security benefit.

That said, if you have not yet claimed benefits and you are nearing FRA while still working, it may be worth waiting a little longer. The issue is not only the earnings test. Filing before FRA also reduces your monthly benefit amount, and that cut is permanent. In the long run, that can be more costly than any temporary withholding caused by working.