Retirement in the United States often brings a financial complication for those who decide to continue working. The Social Security Administration (SSA) has income limits that can temporarily reduce beneficiaries’ monthly benefits if they have not yet reached their Full Retirement Age (FRA).
Before making decisions, it is essential to understand how the Earnings Test works, especially for those who plan to maintain their job on a part-time or full-time basis. This test is the main mechanism used by the SSA to determine the amount the beneficiary will receive, directly impacting their cash flow, which, according to data reported by Bankrate, averages $2,000 per month.
Eligibility and the basic benefit calculation
Social Security establishes that a person is officially considered ‘retired’ at the moment they begin receiving their payments. However, this does not exclude the possibility for beneficiaries to continue working. In fact, citizens have the option to simultaneously receive retirement or survivor benefits while maintaining employment.
What is really important and generates the most interest and doubt is the amount that will be received if both payments are combined. The amount of your retirement benefit is determined through a calculation based on your complete work history. The SSA explains that benefits are ‘computed using average indexed monthly earnings,’ which means that the calculation uses an average of up to 35 years of your lifetime earnings. This process ensures that the benefit reflects your historical contribution to the system.
Below Full Retirement Age (FRA)
The determining factor depends on whether the beneficiary has reached Full Retirement Age (FRA). It is important to note that the FRA is not a fixed universal age, but has been changing (rather increasing exponentially). Currently, reaching FRA in the United States requires being 66 years and 10 months old. If a person is younger and their earnings exceed the annual limit set, the SSA will apply a deduction to their benefits. For 2025, the annual earnings limit was set at $23,400. There are no exceptions: for every $2 earned above the limit, $1 will be deducted from the total monthly benefit.
Income limit
There is an intermediate scenario for beneficiaries who reach full retirement age (FRA) during the year and are still working. For this group, the SSA’s work penalty is milder, and the income limit is significantly higher. The annual limit under this policy is $62,160. In this case, the SSA only deducts $1 from the benefit for every $3 earned above this threshold.
Additionally, the SSA provides an important clarification: “We only count your earnings up to the month before you reach your full retirement age, not your earnings for the entire year,” which means that only earnings obtained before the month in which FRA is reached are counted for the deduction. It is important to understand that starting from the month in which FRA is reached, no deduction is applied regardless of how much the person earns.
Importance of planning the future
Once the beneficiary reaches Full Retirement Age (FRA), they are free to receive their full Social Security benefit without any reduction related to their work earnings. The SSA provides workers with an earnings test calculator so they can accurately project how their work income will affect the amount of their benefits.