The $65,160 Income Limit Some Social Security Recipients Need to Know About

Retirement doesn’t always mean the end of your working years.

Many people continue working after they begin collecting Social Security, whether it’s to earn extra income, stay socially engaged, maintain a sense of purpose, or simply have a reason to leave the house. And a part-time job or consulting work could make retirement more enjoyable while helping you stretch your savings.

But if you claim Social Security before reaching your full retirement age (FRA), working and earning too much money could temporarily reduce your monthly benefits. That’s because Social Security has an earnings test that limits how much you can make before some of your benefits are withheld.

If you’ll reach FRA at some point this year, one number deserves your attention: $65,160.

How Social Security’s earnings test works

The Social Security earnings test applies only if you’re collecting retirement benefits before reaching FRA and continue working. Once you reach FRA, there’s no income limit to worry about. You could earn $300,000 a year and still get your monthly checks paid to you in full.

Under the earnings test, if you’ll reach FRA this year, you can earn up to $65,160 without negatively affecting your Social Security benefits. If your earnings exceed that amount, Social Security will withhold $1 in benefits for every $3 you earn above the limit until you reach FRA.

For example, if your earnings exceed the limit by $9,000, Social Security will withhold $3,000 in benefits for the year.

Now if you won’t be reaching FRA this year but are working while on Social Security, the earnings test limit is even lower at $24,480. And exceeding that limit results in having $1 in benefits withheld per $2 of earnings.

The $65,160 limit gives you a nice amount of leeway to earn money without losing out on Social Security. But if you’re in a lucrative consulting gig or something similar, you might exceed that threshold.

In that case, the good news is that your withheld benefits aren’t lost permanently. Once you reach FRA, you’ll get that money back in the form of larger monthly checks.

Should you claim Social Security if you’re still working?

Given that it’s possible to lose all of your Social Security in the near term because of the earnings test, it’s a valid question. But the answer depends on your situation.

First of all, if you’ve reached FRA, there’s no income limit to worry about, so there’s no reason not to take benefits if you have an immediate use for the money. Otherwise, you may want to figure out how much you expect to earn in wages and how much Social Security you’re likely to have withheld as a result.

Remember, regardless of the earnings test, claiming Social Security before FRA means accepting reduced monthly benefits for life. If your FRA is 67 and you file at the earliest possible age of 62, you’ll be looking at monthly checks that are 30% smaller.

If you’re only able to work part-time and need Social Security to cover your costs, then filing should be a no-brainer. And if you’re in that situation, you may not be looking at exceeding the earnings test anyway.

The earnings test doesn’t necessarily need to deter you from claiming Social Security or working. It’s just something you have to be aware of so you can plan for whatever financial impact might ensue.

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