Social Security's Earnings Test: 3 Things You Need to Know

A lot of people who collect Social Security are done working for good. But even if you're retired and receiving benefits, you may choose to work for a number of reasons.

For one thing, you may want or need income on top of your Social Security checks to keep up with your bills. Or even if you have enough Social Security and savings to cover your essential costs, you may opt to work so you have money for travel and leisure.

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Plus, working could serve as a good way to keep busy. And if you find retirement isolating, working gives you an opportunity to get out of the house and interact with people.

Social Security allows recipients to work while collecting benefits. But in that situation, the program's earnings test could apply. Let's review three aspects of how Social Security's earnings test works so you know what to expect if you intend to hold down a job while receiving benefits.

1. It only applies to beneficiaries who haven't reached full retirement age

Social Security's earnings test basically allows you to earn a certain amount of money before you risk having benefits withheld. That sum changes every year, and the Social Security Administration (SSA) usually announces the earnings-test limits in October along with a cost-of-living adjustment.

But you should know that the earnings test only applies to beneficiaries who are getting Social Security before full retirement age. Once you've reached full retirement age, the earnings test does not apply to you.

2. Withheld benefits are not lost permanently

Exceeding Social Security's earnings-test limits results in having benefits withheld. This year, the limit is $24,480 for beneficiaries who won't reach full retirement age, or $65,160 for those who will reach full retirement age by the end of 2026.

But if you lose benefits due to exceeding the earnings-test limit that applies to you, you're only looking at having that money withheld temporarily. Once you reach full retirement age, the SSA will recalculate your monthly benefits and pay that money back to you over time.

3. It's only earnings from work that are factored in

Social Security's earnings test only applies to earned wages. Those include earnings from a part-time job, freelance work, and self-employment. But withdrawals from retirement savings, pension income, dividends, and interest payments do not count toward the earnings-test limit.

So let's say you're 65 this year and collecting Social Security. You earn $1,000 a month from consulting work and take $3,000 a month out of your IRA for income.

In that case, it's only that $1,000 monthly income that counts toward the earnings test. And since it's below the limit, there's no need to worry about having benefits withheld.

Social Security's earnings test is an important aspect of the program. Make sure you understand its ins and outs if you intend to work while collecting benefits.

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