The Savings Game: Social Security income limits prior to full retirement age
In addition to a monthly newsletter covering retirement planning regulations, IRA advisers Ed Slott and Co. also offer an excellent monthly newsletter covering Social Security issues, written by Heather Schreiber.
In the August newsletter, Schreiber covered regulations that relate to limits of Social Security benefits when beneficiaries continue to work prior to reaching their full retirement age (FRA). She includes information from Don Graves, president of the Housing Wealth Institute. He discusses unwelcome results if Social Security beneficiaries who receive benefits from Supplemental Security Income (SSI) or Medicaid don’t follow associated rules.
Earnings tests
Social Security regulations use a two-tiered system for an annual earnings test (AET). There is one limit for individuals who have not reached FRA for the entire year, and there is a higher limit in the year an individual reaches FRA, which applies only up to the month before FRA. In the first tier, there is a yearly limit of $23,400. If an individual earns either wages or self-employed income exceeding that limit, Social Security reduces Social Security benefit by $1 for every $2 earned above $23,400. In the year a worker reaches his FRA, the limit changes to $62,160. The penalty is $1 for every $3 above $62,160. After an employee reaches his/her FRA, there is no longer a penalty.
There is also a monthly earnings test (MET) if a worker retires by mid-year, defined as July 1, or later. If you retired on or after July 1, you would be eligible to receive your full Social Security benefit, even if you earned more than the annual income levels referred to earlier. The MET allows beneficiaries to receive full Social Security benefits for any month they are fully retired, or earn less than the monthly earnings limit, calculated as one-half of the annual earnings limit divided by 12 ($1,950/month for 2025). Earnings before reaching your FRA are disregarded.
For self-employed workers, the same penalty would apply if the self-employed worker worked more than 45 hours. The penalty would apply if the self-employed worker worked between 15 and 45 hours in a highly skilled” profession. See https//secure.ssa.gov/apps10/poms.nsf/lnx/0302505080.
Social Security Trustees Report
The Social Security Trustees Report issued in 2025 indicates that the combined OASDI trust funds will be depleted by 2034. Unless Congress passes new legislation to increase funding, Social Security beneficiaries would receive only 81% of current benefits. For that reason, I have urged readers to contact their congressional representatives to propose timely solutions to increase Social Security funding.
Reverse mortgages
Individuals who receive SSI or Medicaid benefits should know that these programs are considered “needs based.” Both programs have asset restrictions. Individuals who participate in needs-based programs are only entitled to Social Security benefits if they do not maintain assets above specified limits. Participants in Medicaid have to limit their asset holdings, based on state law. In many situations, a Medicaid participant who holds more than $2,000 in assets would no longer be eligible for Social Security benefits.
If asset holding is above specified levels, the Social Security Administration would stop benefits and send a notice to the participant that they had received overpayments, which they would be required to repay.
Individuals who were approved for a reverse mortgage, and received funding from a financial institution that approved the reverse mortgage, and maintained more than $2,000 in assets would be facing a loss of benefits and a notice of a Social Security overpayment.
For this reason, individuals approved for a reverse mortgage have to be very careful to maintain asset levels consistent with state laws. Otherwise, they would lose their Medicaid benefits and also be facing a bill from Social Security demanding repayment of benefits.
Request for reconsideration
If you receive an overpayment notice from Social Security, you should, within 60 days, submit Form SSA-561-U2, Request for Reconsideration. Filing within 60 days will suspend SSA’s recovery effort preventing immediate withholding of future benefits while the case is being reviewed. You should provide clear documentation when you receive earning information, such as final pay stubs, W-2s or self employment records. If your appeal is denied, you can request a hearing before an administrative law judge.
Bottom line: If you want to continue to receive Social Security benefits, you must follow the rules associated with SSI and Medicaid.
Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.
Originally Published: August 16, 2025 at 9:45 AM EDT