Claiming Social Security while working can reduce your benefits.
This is true (emphasis on “can”), but many folks mistakenly believe that no matter how old you are, you shouldn’t take Social Security when you’re working because you’ll lose benefits. This misunderstanding is most likely attributed to the Social Security Administration’s Retirement Earnings Test, which applies to earnings by claimants who have not yet reached their full retirement age.
So, what is the rule?
This rule stipulates that early filers are subject to an earnings limit that, if exceeded, will result in a temporary reduction in their benefits. For 2025, this limit is $23,400, so earnings over that amount will result in Social Security withholding $1 for every $2 of earnings over that figure. That’s the case for the years between when you started drawing benefits and the year you reach full retirement age; in the year you reach FRA, there is a much larger limit—in 2025 it’s $62,160–meaning in the months before the month you reach full retirement age you can earn up to that amount without a reduction in benefits. The amount withheld is also different in the year you reach full retirement…it’s $1 for every $3 over the limit.
Like many other Social Security parameters, these limits change each year based on the national average wage index. For example, the 2024 limits are $22,320 and $59,520.
What if you’ve reached full retirement age?
So, there’s an element of truth in this post’s title, since benefits can be temporarily lost if you claim before full retirement age, but it’s inaccurate to believe that to be a truth at any age. That’s because when you reach full retirement age, the earnings test no longer applies, and from that point on, there is no limit on the amount you can earn. If you are over age 70, you should know that delayed retirement credits will no longer be earned by those who have delayed filing for their benefits. As a result, not claiming benefits at that point will mean the total loss of retirement benefits you’ve earned, at least until you file for benefits.
It’s also important to note that the withheld amounts are not permanently lost. When you reach full retirement age, Social Security will increase your monthly benefit to account for the months in which benefits were withheld.
An argument for eliminating the earnings test
Administration of the earnings test is an overly complex process, creating an extraordinary amount of clerical effort to track. The reporting and verification processes place a substantial recordkeeping burden on workers and Social Security Administration staff, often adding to the overpayment situations frequently highlighted in the media. Likewise, for those who elect to file early, it is often a surprise that affects cash flow planning in retirement, especially among those intending to use the extra income to bolster their savings for later years.
From a Social Security revenue perspective, limiting the earnings of retirees reduces payroll taxes, thus exacerbating the program’s financial problems. Eliminating this provision would encourage workforce participation and allow retirees to earn more and pay more into the program via FICA taxes.
Proposals have been submitted to Congress to eliminate this burdensome test, and it’s a part of the AMAC Foundation’s Social Security Guarantee now being advanced in Washington. Perhaps the matter will surface in the deliberations for Social Security reform to address the program’s looming insolvency?