While many people don't want to rush through time, many look forward to retirement, when they can put work either completely aside or on the back burner. In either case, retiring doesn't mean you have to quit earning money. If you claim Social Security before your full retirement age, however, you'll need to monitor how much you earn if you continue working, or you'll be subject to Social Security's retirement earnings test (RET).
Every approaching retiree should be aware of the RET, but especially if you're retiring midyear, because it has different implications.
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How much can you earn before being subject to the RET?
If you won't reach your full retirement age in 2026, the earnings limit is $24,480. Earning above that amount will reduce your benefits by $1 for every $2 you earn over it. For example, if you were to earn $10,000 over, your annual benefit would be reduced by $5,000.
If you hit your full retirement age in 2026, the limit is $65,160. Earning above that amount will reduce your benefits by $1 for every $3 over that amount. For instance, going over the limit by $15,000 would reduce your annual benefit by $5,000.
The annual limit is based on changes in the national average wage index, so they generally increase each year (with a couple of exceptions). Last year, the limits were $23,400 and $62,160, respectively.
So, what happens if you retire midyear?
Many people find themselves retiring midyear, having received months of paychecks and potentially exceeding the earnings limits. To assist people who retire midyear, the SSA uses a monthly limit rather than an annual one. This year, it's $2,040 per month if you're under full retirement age for all of 2026, and $5,430 if you reach full retirement age this year.
The major difference between the monthly and annual thresholds is that your benefits aren't gradually reduced if you earn above the monthly limit -- it's a cliff. Earning even $1 above it generally means "losing" your check for the month. The same applies if you perform what the SSA describes as "substantial services in self-employment." That's 45 hours a month or 15 to 45 hours in a highly skilled occupation.
Once Jan. 1 of the following year arrives, your retirement earnings test will be based solely on annual earnings.
Withheld, but not completely lost
Thankfully, your reduced benefits are not put back into the SSA's pockets and lost forever. They're basically withheld until you reach your full retirement age. Once that happens, your monthly benefit will be recalculated to gradually return the withheld benefits.
It's not guaranteed that someone will live long enough to receive all of their withheld benefits, but according to the SSA, most people receive all or most of them.
Regardless, knowing about the withholding can help you decide whether earning over the limit in the present day is worth the reduced benefit.
