Working retirees under full retirement age will be able to earn $25,560 in 2027 before Social Security trims benefits

Working retirees who collect Social Security should be aware that upcoming changes could alter how much they receive.

In addition to adjustments to the cost-of-living adjustment, or COLA, and the cap on earnings subject to Social Security tax, the Retirement Earnings Test exempt amounts are also set to rise.

Why the exemption limits matter

People can begin claiming Social Security as early as age 62, but for those born in 1960 or later, full retirement age is 67.

Claiming before full retirement age means a permanent reduction in monthly benefits.

Retirees may keep working while receiving benefits, but if they have not yet reached full retirement age, there is a limit on how much they can earn before full benefits are reduced. That threshold is the Retirement Earnings Test exempt amount.

These limits usually move higher each year in line with the national average wage index.

There are two thresholds: a lower one and a higher one. The lower limit applies in the years before full retirement age, while the higher limit applies in the year a worker reaches full retirement age.

For people who will not reach full retirement age in 2027, the exempt amount is $25,560. For those who will reach full retirement age in 2027, the limit is $67,920. The higher threshold applies only to earnings in the months before the month full retirement age is reached.

Under the lower limit, the Social Security Administration withholds $1 in benefits for every $2 earned above the threshold. In the year of full retirement age, the agency withholds $1 in benefits for every $3 earned above the higher limit.

Those withheld benefits are not gone permanently. Once full retirement age is reached, the Social Security Administration recalculates the monthly benefit to reflect the months of withheld payments.

Still, for workers who have not yet reached full retirement age, the reductions can build quickly. For example, someone earning $32,000 in 2027 would have $3,220 in Social Security benefits withheld.

Anyone who is working while receiving benefits must tell the Social Security Administration how much they expect to earn during the year. If earnings change from the original estimate, the agency should be notified so the record can be updated. Otherwise, an overpayment could occur and later have to be repaid.

According to the agency, income that does not count toward the earnings limits includes other government benefits, investment income, interest, pensions, annuities and capital gains. Contributions to a pension or retirement plan do count if they are deducted from gross wages.

Other 2027 changes

The COLA will take effect in January 2027, with nearly 72 million Social Security beneficiaries receiving a 3.6% increase, the SSA said.

Based on SSA estimates, the average retired worker’s monthly benefit will rise from $2,095 to $2,170. For couples in which both spouses receive benefits, the average payment will increase from $3,238 to $3,355 a month.

The taxable maximum, which is the highest amount of earnings subject to Social Security tax, will also increase in 2027 to $192,300 from $184,500.