When it comes to the intricacies of Social Security, it pays to think about timing. A big reason experts advise waiting until at least full retirement age to claim Social Security benefits: You get to skip the Social Security benefits earnings test, which hits early claimers who are still working. But there are actually two earnings tests — an annual test and a monthly test — and the second one can help early retirees leaving work midyear to avoid the trap.
Older workers are taking increasingly varied paths out of the workforce. Many such workers are more likely to partially retire or move in and out of the labor force before permanently leaving the workforce, according to the 2023 SSA report, Retirement Trajectories and Social Security’s Retirement Earnings Test. That's why it is important for older workers and their families to understand the implications of the retirement earnings test for their work and retirement decisions.
Here are five things you need to know about the two Social Security earnings tests, including the income thresholds the Social Security Administration set for 2024 and 2025.
1. Social Security earnings test for annual income
The Social Security Administration always applies the annual earnings test first. Based on that test, the agency temporarily withholds $1 of a worker's benefits for every $2 earned over $22,320 for 2024 or $23,400 in 2025. In a year the worker hits full retirement age, the test is more generous — the worker forfeits $1 in benefits for every $3 in 2024 earnings above $59,520. In 2025, that number goes up to $62,160.
In the month a worker hits full retirement age, the annual earnings test goes away. The worker can earn whatever he or she likes, and the monthly benefit amount will be adjusted upward to account for all benefits forfeited in the past (more on recouping lost benefits below).
Sponsored Content
2. Social Security monthly earnings test
If the annual test has tripped you up, you still have a shot at your full benefit. The SSA will apply a monthly earnings test and set your payments according to whichever test is better for you. "It helps people who retire in the middle of the year not to be penalized," says Jim Blair, a former Social Security district manager and a partner at Premier Social Security Consulting, in Sharonville, Ohio.
The monthly test can be used for only one year, usually the first year of retirement. And it comes into play generally for midyear retirees who have already earned more than the annual limit. Those who pass the monthly earnings test can receive 100% of their benefits for any full month the agency considers them retired, regardless of total annual earnings.
Sponsored Content
3. How the Social Security monthly earnings test works
Here's how the Social Security monthly earnings test works based on your full retirement age.
If you will be under full retirement age for all of 2024, you will be considered retired in any month you earned $1,860 or less. In 2025, that amount increases by $90 to $1,950.
If you reach full retirement age in 2024, you’re considered retired in any month you earn $4,960 or less. In 2025, that amount increases by $220 to $5,180.
For example, say a new Social Security beneficiary will turn 62 — the earliest age at which you can claim Social Security but still much younger than the Social Security full retirement age — in June. He wants to retire at the end of June after making $100,000 in the first half of 2024 and wants to start collecting Social Security benefits in July.
Based on the annual earnings test, he'd get no benefit. But in July through December, if he earns $1,860 ($1,950 in 2025) or less each month, the monthly earnings test would open the door to full benefits. If he went over that amount in a month, then the SSA uses the $100,000 he earned through June and he would not receive a Social Security check for that month.
When retiring in the year you reach full retirement age, the earnings test only applies in the months prior to the month of your birthday. The higher threshold of $4,960 ($5,180 in 2025) would apply if the monthly test is used in 2024. The earnings tests count only earned income from a job or self-employment; investment income, for example, and retirement-plan payouts, are ignored.
Sponsored Content
4. Recouping benefits lost to the Social Security earnings tests
The burning question when a person loses Social Security benefits to the earnings test: When do I get my money back?
Unfortunately, you won’t get all your (temporarily) forfeited benefits back in a lump sum at full retirement age. Instead, your monthly benefit amount is adjusted upward the month you hit full retirement age to account for forfeited benefits. The disappearing benefits essentially reduce the time you were considered to have claimed benefits early.
Say you took benefits at age 62 instead of waiting until your full retirement age of 66, giving your benefits a haircut of 25%. If you forfeited 12 months’ worth of benefits to the earnings test, at your full retirement age, you’ll be treated as if you claimed benefits three years early, instead of four. Your lifetime benefits reduction will get slashed from 25% to about 20%. That puts more money in your check every month, and if you live long enough, you’ll recoup all the benefits the earnings test temporarily took away.
Sponsored Content
5. Beware of receiving more in benefits than you should
If you work while claiming early benefits, call Social Security with your estimated earnings so you don't get more benefits than you’re due. “Eventually, earnings are posted to your record and they'll see they overpaid," Blair says. The SSA will want the money back — and will withhold benefit checks until the overpayment is cleared.
Related Content
Sponsored Content
-
What Not to Do When Planning Your RetirementCommitting any of these four common mistakes can set you back in your golden years. Here's how to increase your chances of a successful retirement.
-
2024 Thanksgiving Meal Cost: Grocery Taxes and Your Food BudgetFood Prices Some families are navigating high food prices influencing what’s on the table this Thanksgiving.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
Six of the Worst Assets to Inheritinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
-
457 Contribution Limits for 2024
retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2025retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
