For many older adults, Social Security makes the difference between enjoying a comfortable retirement and struggling to make ends meet.
However, 55% of U.S. adults admit that their benefits are not enough to cover their basic needs in retirement, according to a 2024 survey from the Nationwide Retirement Institute. A separate study from investment management firm T. Rowe Price also found that 20% of retirees are working either full- or part-time, with nearly half doing so for financial reasons.
Working in retirement can be a smart way to create financial stability, but in some cases, your income could shrink your Social Security benefits. Here's what to expect heading into 2025.
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How the retirement earnings test will affect your benefits
The retirement earnings test is an income limit that could reduce your benefit amount, and there are three requirements you'll have to meet before being subject to the limit:
- You must currently be collecting Social Security retirement benefits, spousal benefits, or survivors benefits.
- You must be under your full retirement age (FRA).
- You must be earning an income (such as wages from a job).
If you check all of these boxes and your income surpasses a certain threshold, a portion of your benefits will be temporarily withheld. The higher your earnings, the larger your benefit reduction will be.
While the retirement earnings test is not a new concept, the income limits themselves generally change from year to year. The good news is that the thresholds will increase in 2025, so you can earn more before facing reductions.
There are two earnings test limits: one for those who are well below their FRA, and a second for those who will be reaching their FRA this year. If you reach your FRA in 2025, only the income in the months leading up to your actual FRA will count toward the limit.
| Income Limits 2024 | Income Limits 2025 | Benefit Reductions | |
|---|---|---|---|
| If you're under FRA | $22,320 per year | $23,400 per year | $1 for every $2 over the limit |
| If you'll reach your FRA this year | $59,520 per year | $62,160 per year | $1 for every $3 over the limit |
Data source: Social Security Administration. Table by author.
For instance, say you're 66 years old and will reach your FRA in 2025. Let's also say that in the months leading up to your FRA, you'll earn $60,000. In 2024, that income would have been over the $59,520 annual limit, reducing your monthly payments.
Starting in 2025, though, your earnings will fall below the new $62,160 annual limit -- assuming your income stays the same. This means you won't face reductions at all and can keep all of your benefits.
The good news about earnings test reductions
Higher earnings test limits mean you can keep more of your benefits in the short term, which is good news if you're stretching every dollar in retirement. However, in the long term, it shouldn't make much of a difference in your lifetime income.
No matter how much of your benefits are withheld, the Social Security Administration will recalculate your payments once you reach your FRA. Your new benefit will account for all the reductions due to your income, and you'll receive larger checks for the rest of your retirement.
In other words, the bigger your reductions now, the more of a boost you'll receive down the road. While these withholdings can sting in the near term, they can help provide a more financially stable retirement for decades to come.
Everyone's retirement is unique, and choosing to work while taking Social Security can be a smart way to increase your income. Just be aware that you could face hefty benefit reductions depending on how much you're earning. By staying up to date on the earnings test limits, you can head into 2025 as prepared as possible.
