The Social Security earnings test tightens in 2025, and the government has confirmed who’s at risk of losing benefits at least temporarily. These changes mean that millions of working retirees may have their benefits reduced depending on how much they earn and their age.
Here is who is affected, and how much they could lose.
What Is the Social Security Earnings Test?
The Social Security earnings test determines how much income you can earn before your benefits are reduced. The test applies only to individuals who start collecting Social Security retirement benefits before reaching their full retirement age (FRA). Once you have reached FRA, you can earn as much as you can without risking a reduction.
However, if you are still under FRA and earning above a certain limit, a portion of your monthly Social Security check could be withheld. Therefore, it is essential to understand the changes that come with the Social Security earnings test being tightened in 2025.
Who is Affected by the 2025 Social Security Earnings Test?
When it comes to the earnings test, retirees are grouped into three general categories:
a) You reached full retirement age before 2025:
If you reached FRA before 2025, you are safe, and the tightening of the earnings test will not apply to you, no matter how much you earn.
b) You will reach FRA during 2025:
Although the rules for those in this category are more lenient, they still apply. For the months before your birthday, you can earn up to $62,160 annually or $5,180 monthly without a reduction in your benefits. If you go over that limit, $1 of your benefits will be withheld for every $3 you earn.
c) You will reach full retirement age after 2025:
Retirees in this group are the most affected as the Social Security earnings test tightens in 2025. Your earnings limit is lower at just $23,400 per year or $1,950 monthly. Earning beyond that will reduce your benefits as every 1$ will be withheld for every $2 you earn.
A 63-year-old retiree planning to work while collecting Social Security in 2025 and earning $30,000 annually is earning $6,600 over the limit. Under the tightened 2025 rules, $3,300 will be withheld from his/her benefits.
Will the Benefits be Withheld Forever?
No. The Social Security Administration doesn’t withhold the money forever. Once you reach your FRA, your monthly benefits will be recalculated and increased to reflect what was withheld earlier. So, technically, you are not losing the money. However, the withholding affects your cash flow in the short term.
Should You Delay Claiming Benefits?
Whether to delay collecting Social Security benefits while still working or not is a personal financial decision. It also makes sense to claim your benefits early if you need it even if that means some benefits are withheld.
However, if you are earning above the threshold and can afford to wait, it may be wiser to delay claiming until you reach FRA.
Conclusion
If you are a working retiree or becoming one, it is crucial to be up to date with the Social Security earnings test rules. In 2025, the earnings test will be tighter, meaning that many working retirees might have their benefits withheld.
You can talk to a financial advisor, calculate your projected income, and decide to wait to claim your benefits if it makes long-term sense. You can also claim your benefits early while still working if your earnings are below the threshold.
Most importantly, knowing the rules of working while in retirement will help you make the right personal decision and avoid unpleasant withholding of your benefits that could affect your financial life negatively.