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Claiming Benefits Early? Beware the Retirement Earnings Test
Social Security regulations stipulate that upon beginning retirement, spousal, or survivor benefits, beneficiaries are considered “retired” and expected to leave the workforce. Current regulations allow for continued earning from employment for those who claim benefits before their full retirement age (FRA), but there is a limit to how much a worker can earn and continue to receive scheduled benefits each year. Social Security sets annual limits on the earnings early filers can record before those benefits are reduced. The limit changes yearly based on the National Average Wage Index, with the 2025 limit set at $23,400. Exceeding that limit triggers a reduction of $1 for every $2 earned over the limit, causing an impact on benefit payments. For the year the early retiree reaches FRA, there is a different limit and a different reduction factor applicable to the months until the month full retirement age is reached.
So, what does all that mean to pre-FRA retirees? As explained in a nasdaq.com post by The Motley Fool’s Kailey Hagen, retiring early results in a lower monthly benefit–as much as 30% for someone claiming a age 62 with a FRA of 67–but it also could put that retiree “… at risk of losing even more money to an obscure Social Security rule.” The “obscure rule” she’s referring to is the Retirement Earnings Test described above. Check her post out here for the details associated with her explanation.