Thinking about starting Social Security while still working? On the service, this seems like a great deal. Why not get a paycheck and Social Security at the same time? However, you may want to reconsider. Social Security is intended to replace your paycheck after you stop working, not to supplement it.
If you take benefits before full retirement age while you’re still earning income, you need to be aware of the earnings test. The earnings test reduces your benefits if you earn over certain limits. This can have a massive impact if you’re not prepared.
How the Earnings Test Works
Prior to reaching full retirement age:
In 2025, you can earn up to $23,400 without reducing social security benefits. For every two dollars of income you earn above that limit, one dollar in benefits will be withheld.
There’s also a monthly limit ($1,950 in 2025). Staying under that threshold in any month means no reduction for that month.
In the year you reach full retirement age:
The penalty becomes smaller and the income limit is higher. The month you reach full retirement age, the earnings test stops. Going forward, your normal benefit is paid regardless of earnings.
After reaching full retirement age:
The earnings test does not apply once you reach full retirement age. It does not matter how much income you earn.
Let’s look at a couple of examples
1. Retiring during the year before reaching full retirement age.
David retires when he turns 62 in June, elects to start his benefit in July. David earned $100,000 before retiring. Even though David is over the annual limit, if he stays under the monthly limit of $1,950 for the remainder of the year, he will not be impacted by the earnings test. David’s benefits will be reduced for claiming early at 62, but not because of the 100k he earned prior to retiring.
2. Collecting Benefits While Working, but over Full Retirement Age
John turned full retirement age in June and starts his benefits while still earning $100,000 from his job. His benefits should not be withheld because he is past the full retirement age.
Key Points
Social Security is confusing, and sometimes mistakes happen. The simplest way to avoid it penalties? Try to avoid claiming early if you’re still working.
If you claim early, the earnings test can also impact your family. Social Security withholds benefits for anyone tied to your record. If your spouse claims on your record, while you’re still working, their checks may stop as well.
For those that are self employed, be aware of both income and hours. If you have low earnings, but work more than 45 hours, you could have benefits withheld.
How to maximize?
If you’re still a higher earner, the most prudent strategy is usually to wait until you reach full retirement age. However, to completely max out your benefits, waiting until 70 will give you the maximum monthly payment.
There are some exceptions where it can make sense, but in general, working and claiming early can be costly.
