How to work in retirement without seeing your Social Security checks slashed

By Richard Eisenberg

Claiming benefits before full retirement age while keeping a job can trigger unexpected withholdings - but the money isn't lost forever

More than 500,000 beneficiaries are hit by the Social Security earnings test each year.

You may run into a big financial problem if you decide to work in retirement: Losing some or even all of your Social Security benefits temporarily because of the Social Security retirement earnings test (RET).

More than 500,000 beneficiaries get hit by the earnings test annually because they claim benefits while working and haven't reached Social Security's full retirement age, currently around 67.

Many retirees who don't know about the RET and see money being taken from their Social Security benefits get pretty upset.

"When people hear about the RET, they think it's a tax. Then they see their Social Security check go down in size and they get mad," said Jason Fichtner, executive director of the LIMRA Retirement Income Institute. "They're like, 'Why is my check getting reduced because I'm working?'"

Antipathy toward the earnings test, and a belief that the rule is outdated since so many older Americans need to work, is why legislation is percolating in Congress to repeal it.

The desire to work in retirement has been growing for several reasons. We're living longer, requiring our money to last for more years; pensions have faded, so fewer retirees have guaranteed monthly income from their former employers; Social Security's retirement trust fund is expected to be insolvent in 2032, a year sooner than the program's trustees forecast in 2025; and many Americans are woefully short on savings and facing underfunded retirements. Consequently, financial advisers often recommend working longer - yet the RET can garnish benefits.

Retirement analysts say the earnings test, which has been around since Social Security started, is widely misunderstood and often catches older adults by surprise - especially those among the 61% of beneficiaries who claim before full retirement age.

How the earnings test works

This year, if you claim Social Security benefits between age 62 (the earliest age allowed) and full retirement age, and have annual employment earnings over $24,480, Social Security withholds $1 for every $2 you earn over that amount. If you start claiming in the months before your birth month for full retirement age, then Social Security withholds $1 for every $3 you earn over $65,160, a somewhat less restrictive policy.

The thresholds rise each year based on the national average wage index and the test doesn't apply to investment income, retirement accounts, pensions or annuities.

Rachel Greszler, a research fellow at the conservative Advancing American Freedom advocacy group, said the earnings test can mean a "perceived" marginal tax rate of 84% for some older high earners.

Benefits postponed - but not gone forever

Here's the important part many people don't realize: The withheld benefits aren't lost forever. The Social Security Administration starts adding back the money monthly once you hit full retirement age. You'll eventually be made whole, assuming you live long enough to receive the full amount withheld.

"The word we use is 'postponed,' because the money doesn't disappear," said Stuart Ritter, retirement-insights director at T. Rowe Price.

Now, the truly unpleasant part: If you're subject to the earnings test because you made over $70,000 or so from working, your entire Social Security check might be withheld as a result of its formula.

Here's an example from Rob Moore, a registered Social Security analyst and the owner of Get Moore Consulting in Indianapolis:

Sandy is 64, eligible to receive $2,800 a month from Social Security and is earning an $80,000 salary (or $55,520 over the $24,480 earnings-test limit). Since $27,760 will be withheld from her annual benefits, Social Security won't send her any money for 10 months. (If she earned $30,000, Sandy would go one month without receiving a Social Security check.)

The earnings test was even harsher in the past. During the Great Depression, when the government wanted older adults to leave the workforce so younger people could get jobs, Americans couldn't receive Social Security benefits if they earned more than $15 a month (the equivalent of about $360 today). The test was later applied just to people in their 70s. In 2000, President Clinton signed into law what we have today.

Repealing the earnings test

Sen. Rick Scott, a Florida Republican and chair of the Senate Aging Committee, has proposed legislation to repeal the earnings test "so seniors who want to stay in the workforce can do so without being punished or robbed of their hard-earned benefits," he said at a recent hearing discussing the rule.

Repeal supporters include the Society for Human Resource Management, the conservative Heritage Foundation think tank and Laurence Kotlikoff, co-author of "Get What's Yours: The Secrets to Maxing Out Your Social Security," who calls the earnings test "a confiscatory tax on work." The National Committee to Preserve Social Security and Medicare supports repeal in concept, but in conjunction with addressing age discrimination by employers.

"I know from attending town halls with seniors that repealing the earnings test would be extremely popular," Dan Adcock, director of government relations and policy for the National Committee to Preserve Social Security and Medicare, said at the Senate Aging Committee hearing.

However, repealing the earnings test would likely lead to more people claiming Social Security early, hastening the system's impending insolvency. A repeal of the earnings test could push Social Security's insolvency "right to our doorstep," Adcock said.

It would also temporarily increase the cost of running the Social Security Administration, due to reprogramming its computers to eliminate the calculations needed for withholding benefits due to the earnings test. But some analysts say a repeal would likely save Social Security money in the long run because more older adults would work, boosting tax revenues for the system.

Navigating the Social Security earnings test

For now, here's what advisers suggest you consider if you're thinking about claiming Social Security and working before full retirement age:

Meet with a financial planner or Social Security analyst. A professional can help you weigh the pros and cons of claiming early versus working; see how big a dent the earnings test would make in your Social Security benefits; and project roughly how long it might take to get the withheld money back.

"I think the Social Security claiming decision is the most important financial decision someone can make for their retirement," LIMRA's Fichtner said.

Eustache Clerveaux, a certified financial planner and a partner at Fidare Wealth in White Plains, N.Y., said deciding whether and how much to work and whether to claim Social Security early "comes down to cash flow." In other words: Do you need to work and receive Social Security benefits before full retirement age just to pay the bills?

The calculation also hinges on how much you'd be earning before full retirement age, since the more you make, the less you'll get from Social Security during the earnings-test period. "If you're 62 and working full time, it would be crazy to take Social Security knowing you're going to have [an earnings-test] clawback,' said David Rae, founder of DRM Wealth Management in Los Angeles.

But, he added, if you're retired and struggling financially due to inflation, a paucity of savings and meager work income, "you may really need to claim Social Security" - and the ddds are that any hit you'll feel from the earnings test will be fairly minimal.

Don't forego work just because it could mean smaller Social Security benefits for a period, Ritter said. "You will always have more money if you work than if you don't," he noted.

Claiming Social Security early while working in retirement not only can mean a temporary withholding due to the earnings test but a permanent reduction in your benefits, since they are smaller when you begin claiming before full retirement age.

Run the earnings-test numbers. The Social Security Administration's website has a simple Retirement Earnings Test Calculator that can show the effect on your benefits from working before full retirement age. Many financial planners have their own tools, such as the T. Rowe Price Income Solver. The National Association of Registered Social Security Analysts has one, too. Or you could buy Social Security planning software such as Kotlikoff's MaxiFi Standard ($109 a year).

If your employment income will be around the $24,480 earnings-test threshold, think about "clumping." That means earning just under the amount where Social Security will withhold benefits.

"You may want to try to stop earning more than $20,000 from work," said Miklos Ringbauer, founder of Miklos CPA, an accounting and tax-strategy firm in Southern California.

Self-employed people might postpone year-end invoicing to the following year. Doing so could mean having less income that's subject to the earnings test this year, or perhaps none at all, Ringbauer said.

The earlier you can begin figuring out what will be best for your finances when it comes to working in retirement and claiming Social Security, the better.

"Often, I like to start talking to people at age 50 to make sure they'll be landing where they want to," said Moore.

-Richard Eisenberg

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06-27-26 1530ET