Working While on Social Security: 3 Essential Facts You Should Know

For many retirees, Social Security benefits serve as a critical source of income during retirement. However, as more Americans continue working well into their 60s and beyond, questions about how work affects Social Security benefits often arise. If you’re planning to work while collecting Social Security, there are important rules, limits, and strategies you should be aware of to maximize your benefits.

1. Your Earnings May Temporarily Reduce Your Benefits Before Full Retirement Age

If you are under your Full Retirement Age (FRA)—which is 67 for those born in 1960 or later—working while receiving Social Security benefits can impact your payments. Social Security has an earnings limit, and exceeding it can temporarily reduce your monthly benefit.

Key Earnings Limits in 2025:

• Under Full Retirement Age:
  If you earn more than $21,240 annually ($1,770 per month), Social Security will withhold $1 for every $2 you earn above the limit.
• In the Year You Reach Full Retirement Age:
  In 2025, the limit increases to $56,520 annually ($4,710 per month). Social Security will withhold $1 for every $3 earned above this threshold, but only until the month you reach your FRA.
• After Full Retirement Age:
  Once you reach FRA, you can earn as much as you want without any reduction in benefits.

Example:

If you are 64 years old and earn $30,000 in 2025, you are $8,760 over the $21,240 limit. Social Security will withhold $1 for every $2 over the limit, resulting in a $4,380 temporary reduction in your benefits.

However, these reductions are not permanent. The amount withheld will be recalculated and added back to your monthly payments after you reach FRA.

What Retired Workers Can Expect in Social Security Payments by February 2025

2. Your Work Income Could Impact Your Taxes on Social Security Benefits

If you work while receiving Social Security, your combined income (including wages, Social Security benefits, and other income like dividends) determines whether your benefits are taxable.

How Social Security Benefits Are Taxed:

• If your combined income (adjusted gross income + nontaxable interest + 50% of your Social Security benefits) exceeds certain thresholds, up to 85% of your benefits could become taxable.

Key Thresholds for 2025:

• Single Filers:
  • Up to 50% of benefits are taxable if combined income is between $25,000 and $34,000.
  • Up to 85% of benefits are taxable if combined income exceeds $34,000.
• Married Filing Jointly:
  • Up to 50% of benefits are taxable if combined income is between $32,000 and $44,000.
  • Up to 85% of benefits are taxable if combined income exceeds $44,000.

Example:

If you’re single, earn $40,000 from a part-time job, and collect $20,000 in Social Security benefits, your combined income would be $50,000. This means 85% of your Social Security benefits would likely be subject to federal taxes.

3. Your Benefits May Increase If You Continue Working

Working while receiving Social Security can actually lead to higher monthly benefits in the future, especially if your current earnings are higher than the income from earlier years included in your 35 highest-earning years used to calculate your benefit. Social Security automatically recalculates your benefit each year to account for higher earnings.

Why This Matters:

• Social Security benefits are based on your lifetime earnings, adjusted for inflation. If you replace a lower-earning year with a higher-earning one, your average indexed monthly earnings (AIME) will increase, resulting in a permanent benefit boost.

Social Security Benefits and Employment in 2025: What You Need to Know

Additional Considerations

1. Delaying Benefits:
   If you’re still working and don’t need Social Security income, consider delaying your claim. For every year you delay benefits beyond FRA (up to age 70), your benefit increases by 8% per year.
2. Medicare Premiums:
   Higher earnings may also increase your Medicare Part B and D premiums due to income-related monthly adjustment amounts (IRMAA).

Conclusion: Balance Work and Social Security Wisely

Working while collecting Social Security can be financially advantageous if managed strategically. By understanding earnings limits, tax implications, and the potential to increase your benefits, you can make informed decisions about balancing work and retirement income. Whether you’re working to stay active, supplement your income, or build savings, knowing these rules will help you avoid surprises and maximize your benefits.

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