Retirement Reality Check: How Working Can Impact Your Social Security Benefits
For millions of Americans, Social Security is the lifeline that makes retirement possible. However, a staggering 55% of adults admit that their benefits aren’t enough to cover basic needs, according to a recent survey. This reality check is prompting many to consider working in retirement, but it’s essential to understand how this decision can affect your Social Security benefits.
The Retirement Earnings Test: What You Need to Know
The retirement earnings test is an income limit that can reduce your benefit amount if you’re working while collecting Social Security. To be subject to the limit, you must be:
- Currently receiving Social Security retirement, spousal, or survivors benefits
- Under your full retirement age (FRA)
- Earning an income from a job
If you meet these criteria and your income exceeds a certain threshold, a portion of your benefits will be temporarily withheld. The good news is that the income limits will increase in 2025, allowing you to earn more before facing reductions.
Income Limits: What’s Changing in 2025
There are two earnings test limits: one for those well below their FRA and another for those reaching their FRA in 2025. The new limits are:
- $23,400 per year for those under FRA (up from $22,320 in 2024)
- $62,160 per year for those reaching FRA in 2025 (up from $59,520 in 2024)
How the Earnings Test Affects Your Benefits
Let’s say you’re 66 years old and will reach your FRA in 2025, earning $60,000 in the months leading up to your FRA. In 2024, that income would have exceeded the limit, reducing your monthly payments. However, in 2025, your earnings will fall below the new limit, allowing you to keep all of your benefits.
The Long-Term Impact on Your Benefits
While higher earnings test limits mean you can keep more of your benefits in the short term, it won’t make a significant difference in your lifetime income. The Social Security Administration will recalculate your payments once you reach your FRA, taking into account any reductions due to your income. This means you’ll receive larger checks for the rest of your retirement.
Maximizing Your Social Security Benefits
Working in retirement can be a smart way to increase your income, but it’s crucial to be aware of potential benefit reductions. By staying up to date on the earnings test limits, you can head into 2025 as prepared as possible. Additionally, learning how to maximize your Social Security benefits can help ensure a more financially stable retirement.
Leave a Reply