Reconsidering Retirement for Work? Prepare for a Potential Decline of $239 in Monthly Social Security Benefits, Commencing in 2025.
Reconsidering Retirement for Work? Prepare for a Potential Decline of $239 in Monthly Social Security Benefits, Commencing in 2025.
Retiring can be costly, and many seniors continue working past their retirement age to make ends meet. In fact, 75% of employees anticipate earning a salary during their retirement years, as reported by the Employee Benefit Research Institute in 2024.
Working while collecting Social Security can impact your benefits, though. On average, a retiree who continues to work may see a decrease of approximately $239 in their monthly checks, and depending on your income, a substantial portion of your benefit might be withheld. As we approach 2025, here's what you should expect.
Determining if your benefits will be reduced in retirement
If you keep working and receive Social Security before reaching your full retirement age (FRA), your income will be subject to the retirement earnings-test income limit. Exceeding this limit will lead to a reduction in your benefits during the years leading up to your FRA.
To predict whether your benefits will be decreased, you'll need to know your specific FRA and your yearly income. Your FRA depends on your birth year and falls between 66 and 67 for everyone.
There are two income limits: one for individuals who will be far under their FRA in 2025, and another for workers who will attain their FRA in the following year.
| Age | 2025 Income Limit | Benefit Reduction || --- | --- | --- || Below FRA in 2025 | $23,400/year | $1 reduction for every $2 earned over the limit || FRA in 2025 | $62,160/year | $1 reduction for every $3 earned over the limit |
Under FRA in 2025
In 2024, people aged 65 and above earning a full-time salary had a median income of approximately $58,292 annually, as reported by the Bureau of Labor Statistics. Considering a scenario where you're working part-time in retirement and making half of that amount, or $29,146 per year, your income would be $5,746 over the annual limit. In this case, your benefits would be reduced by $2,873 annually, or roughly $239 per month.
$23,400 per year
A positive aspect to keep in mind
$1 reduction for every $2 earned over the limit
As your retirement income grows, so do the reductions in your benefits. In extreme situations, your entire benefit may be withheld. However, you'll eventually have your benefit recalculated at your FRA, resulting in larger checks for the remainder of your life.
The retirement-earnings test is designed in such a way that it should allow you to recover all withheld benefits, provided you spend a significant portion of your retirement years earning a salary. While the initial reductions can be harsh, you're not truly losing anything in the long term.
Will reach FRA in 2025
To recoup the $16,560 that was withheld over four years of work, you'd need to receive slightly larger payments for 20 years after your FRA. In this case, the total amount received remains the same. However, if you're unsure if you'll spend at least a few decades in retirement, you might not recover all of your withheld benefits.
$62,160 per year
Is working in retirement a wise choice?
$1 reduction for every $3 earned over the limit
Generally, the benefits of working after claiming Social Security often outweigh the drawbacks. Although the temporary benefit reductions may be uncomfortable, the income you earn from your job might have a more significant impact on your overall budget than the withholdings.
Still, consider your personal objectives and preferences to make the best choice for your situation. With thorough knowledge of the retirement-earnings test, you can decide if it's worthwhile to continue working while receiving Social Security.
If you're yet to reach your full retirement age and are earning a salary, your benefits could be reduced due to the retirement earnings test income limit. In 2025, if you're below your full retirement age, every dollar you earn over $23,400 will result in a dollar reduction in your monthly benefits. Conversely, if you're set to attain your full retirement age in 2025, you'll face a reduction of $1 for every $3 you earn above $62,160 annually.