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The Retirement Earnings Test and the Probelms it can Cause - Yahoo!Finance; Benzinga
Social Security has quite a few nuances, many of which go unnoticed until they turn into problems for beneficiaries. The Social Security Retirement Earnings Test is one such nuance. 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 (NRA), but there is a limit to how much a worker can earn and continue to receive scheduled benefits prior to reaching NRA.
In the original bill establishing Social Security, it was stipulated that “No person shall receive such old-age annuity unless . . . He is not employed by another in a gainful occupation.”[1]This absolute stipulation was quickly (and repeatedly) modified more than a dozen times through the years to allow for a base amount of earnings that would not affect benefits, and in 1975 the limits were tied to the national average wage index for annual adjustment purposes
Social Security sets annual limits on the earnings early filers can record before those benefits are reduced. As noted above, the limit changes each year based on the National Average Wage Index (NAWI), 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. In 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.
It can be a bit complicated to track and report and, if overlooked, can lead to an unwelcome surprise, as described in a post by Benzinga’s Kaili Killpack appearing on the Yahoo!Finance page (read it in full here.) Ms. Killpartick describes a shocking overpayment notice received by a new retiree who was unaware of the limitation. Her post outlines the current rules, along with advice on how to proceed in the event such a notice is received.
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[1] Social Security Administration, https://www.ssa.gov/history/ret.html