Retirement can be incredibly expensive, and it’s not uncommon for older people to continue working in some capacity later in life. In fact, according to a 2024 report from the Employee Benefit Research Institute, 75% of workers expect to work for pay in retirement.
However, working while receiving Social Security may affect the amount of your benefits. The average working retiree could see their checks reduced by about $239 per month, and depending on your income, most of your benefits could even be withheld. Here’s what to expect by 2025.
If you continue to receive income after having benefited from Social Security and you are under your full retirement age (FRA), your salary will be subject to the income ceiling determined by the retirement income test. When your income exceeds this limit, your benefits will be reduced in the years before your FRA.
To determine if your benefits will be reduced, you must first know your exact FRA and income for the year. Your FRA will depend on your year of birth, but it is between 66 and 67 for everyone.
There are two income caps: one for those who will be well below their FRA in 2025 and a second for workers who will reach their FRA next year.
|
Age |
Income ceiling in 2025 |
Reduction of benefits |
|---|---|---|
|
Under FRA in 2025 |
$23,400 per year |
$1 off for every $2 earned over the limit |
|
Will reach FRA in 2025 |
$62,160 per year |
$1 off for every $3 earned over the limit |
Source: Social Security Administration. Table by author.
In 2024, full-time workers ages 65 and older earned a median salary of about $58,292 per year, according to data from the Bureau of Labor Statistics. Let’s say, for example, that you only work part-time in retirement while earning half that amount, or $29,146 per year.
Let’s also say you’re 65 with an FRA of 67. These numbers would subject you to the smaller income limit, since you won’t reach your FRA in 2025. In this case, your income would be $5,746 at – above the annual limit, reducing your benefits by $2,873 per year, or about $239 per month.
The more money you earn in retirement, the more drastically your benefits will be reduced. In extreme cases, the full amount of your benefits could even be withheld. However, the good news is that your benefit will be recalculated by your FRA and you will receive larger checks for the rest of your life.
The retirement income test is designed so that, in theory, you should get back all the benefits that have been withheld. So while these reductions may be significant in the short term, you’re not missing out on anything, assuming you spend a lot of time in retirement.
