Pursuing Early Social Security Retirement While Employed? Avoid this Less-Known Regulation That Could Drain Your Funds.
Claiming Social Security benefits may be a topic of debate, but one thing is undeniable: for over 51 million Americans relying on retired workers' benefits as of January's end, it serves as a significant income source. Regardless of how much of your retirement income Social Security constitutes, you can still work if you've reached your full retirement age (FRA), which varies from 66 to 67 depending on your birth year.
The FRA marks the eligibility for your primary insurance amount (PIA), and you can work as much as you wish. However, claiming benefits before your FRA with significant work-related earnings brings in the Social Security retirement earnings test (RET). To help optimize your earnings and minimize potential penalties, consider the following pointers.
Navigating 2025's Social Security RET
The RET threshold for those who won't reach FRA in 2025 stands at $23,400. For every $2 of excess earnings, $1 in annual benefits is withheld. For instance, if you exceed $28,400 by $5,000, your benefits would decrease by $2,500 ($5,000 divided by $2).
For those close to their FRA in 2025, the threshold increases drastically to $62,160: for every $3 over the limit, $1 in benefits is withheld. With $68,160 in earnings, your annual benefits would be reduced by $2,000 ($6,000 divided by $3). Earnings after the month of reaching FRA aren't subject to the RET test.
Social Security relies on the national average wage index (NAWI) to adjust the annual earnings limit. In situations where NAWI doesn't increase, the limit remains unchanged. Unlike recent years in 2015-2016 and 2009-2011.
Staying updated on the RET income limit is essential. You may surpass the limit one year and not the next.
Witnessing RET in Action
Although having your benefits reduced isn't ideal, the good news is that your benefits aren't permanently forfeited to the RET. They're essentially withheld and returned to you gradually when you reach FRA.
For example, if your FRA is 67, and you start claiming benefits at 65 while earning more than the RET limit, potential reductions could leave a $4,000 deficit over the next two years until you reach 67. Following your FRA, Social Security will recalculate your benefits, gradually restoring the withheld amounts monthly for the rest of your life.
Working Beyond RET Limit: Is It Worth it?
Although having your Social Security benefits reduced might not be appealing, in some situations, it could be beneficial, particularly if the reductions don't compromise your livelihood.
Seizing the opportunity to work beyond the RET limit may offer financial advantages and personal satisfaction. It could keep you engaged, help maintain social connections, and provide purpose – or all three.
Ideally, retirement work should be a choice rather than a necessity. If you're working in retirement, understanding the intricacies of the Social Security RET can help you make informed decisions about whether it's worth reducing your benefits to gain additional income or experiences.
The Retirement Earnings Test (RET) threshold for individuals not reaching their Full Retirement Age (FRA) in 2025 is $23,400, with potential benefits reduction of $1 for every $2 of excess earnings. For those close to their FRA in 2025, the threshold increases significantly to $62,160, with a reduction of $1 for every $3 over the limit. Exceeding the RET limit in certain years can result in potential reductions, but these reductions are not permanent; they are gradually returned to you once you reach your FRA.
In some cases, working beyond the RET limit might provide financial advantages and personal satisfaction, keeping you engaged, helping maintain social connections, and providing a sense of purpose. Understanding the complexities of the Social Security RET is crucial to make informed decisions about whether reducing benefits to gain additional income or experiences is a worthwhile choice in your retirement. If retirement work becomes a necessity instead of a choice, it may add to your overall retirement income and provide you with a sense of purpose.
