Key Takeaways
- Next year, Social Security will hold back $1 of benefits for every $2 that a claimant under full retirement age earns above $25,560. This year’s limit is $24,480.
- A 61-year-old plans to claim at 65 and keep earning $24,000 a year working part-time for her son. That puts her $1,560 under next year’s limit.
- If her pay rose to $30,000, $2,220 of her benefits would be withheld at next year’s figures. Social Security would credit those months back with a higher monthly benefit from 67.
- The limit she’ll face is the one for the year she claims, so she should watch for a raise or extra hours between now and then.
If you plan to claim Social Security before full retirement age and keep working, there’s some good news for you: next year, you can earn $25,560 before any of your benefits are held back. That’s $1,080 more than this year’s $24,480 limit.
And it’s especially good news for a 61-year-old who posted in Reddit’s r/retirement forum. She and her husband have $535,000 between an investment account and a 401(k), and both plan to claim Social Security at 65. She asked whether they’ll be ready to retire in four years. Part of the plan is a paycheck: “I will continue to work for my son part-time after retirement bringing in $24,000 a year,” she wrote.
She has $1,560 to spare
Like anyone born in 1960 or later, she has a full retirement age of 67. Claiming at 65 puts her two years early, and Social Security’s earnings test applies to anyone who claims before full retirement age and keeps earning. At next year’s figures, her $24,000 is $1,560 under the $25,560 limit, so none of her benefits would be held back. She’d clear this year’s $24,480 limit too, by $480.
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Over the line, Social Security keeps $1 of every $2
The earnings test has two limits. In each year before the year she reaches full retirement age, Social Security withholds $1 of benefits for every $2 she earns over $25,560, at 2027’s figures. In the year she turns 67, the limit jumps to $67,920, and $1 is withheld for every $3 above that. Once she reaches 67, her earnings no longer reduce her benefits at all.
So the lower limit applies to her in the years she turns 65 and 66, and the higher one in the year she turns 67. Her $24,000 is far under the higher one.
A raise to $30,000 would cost her $2,220 for now
Of course, her son could give her a raise, or she could pick up more hours. Say her pay rose to $30,000 a year. That’s $4,440 over next year’s $25,560 limit, so at $1 for every $2, Social Security would withhold $2,220 of her benefits for the year. In the year she turns 67, the same $30,000 would be well under the $67,920 limit, so nothing would be withheld.
And the withheld money comes back to her over time. At 67, Social Security recalculates her benefit to give her credit for the months it withheld. It takes those months out of the reduction for claiming early, so her monthly benefit goes up from then on. She doesn’t have to apply for it.
She has options if the paycheck grows
If her pay goes past the limit, she has three choices:
- Keep her hours low enough to stay under that year’s limit.
- Take the withholding along with the higher benefit at 67.
- Wait to claim until 67, when the earnings test no longer applies and her benefit has no cut for claiming early.
She’d still come out ahead with the withholding, though. A raise to $30,000 is $6,000 more pay, and after the $2,220 withheld, she’d be $3,780 ahead of her $24,000 plan for that year, before taxes. So on these numbers, a raise past the limit still pays.
Her limit isn’t set yet
She’s 61 now, so she’ll claim at 65 in about four years, under that year’s limit, which hasn’t been set. Social Security resets the limit every year in line with the national average wage, and from this year to next it rose $1,080. What she’d want to watch between now and then is her own pay: a raise or extra hours that grow faster than the limit could put her over.
The way I see it, this is one Social Security rule she can stop worrying about. The plan she posted clears next year’s limit with room to spare. Even a raise past it would leave her ahead, with the withheld months credited back at 67.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
