Photo credit: jb
For many folks, starting to receive Social Security as early as possible is important – even if they’re still actively working and earning a paycheck. The desire to start receiving that Social Security benefit as soon as possible is overwhelming.
Something happens when you do this though: depending on how much you’re earning, you may be giving up a portion, or even all, of the Social Security benefit that you would otherwise receive. Up to the year that you will reach Full Retirement Age, for every two dollars that you earn over the annual limit ($23,400 for 2025, or $1,950 per month), your Social Security benefit will be reduced by one dollar.
Then in the year you reach Full Retirement Age (FRA) there is a different income limit – actually $5,180 per month. For every three dollars over that limit, your Social Security benefit will be reduced by one dollar – up until the month that you actually reach FRA. Once you’ve reached FRA, there is no income limit, and you can earn as much as you want, without any of the reductions that are applied to earnings prior to FRA.
The good news is these reductions aren’t completely lost – you’ll actually get credit for them later on at FRA. So if you’re earning enough (for example) to reduce your benefit down to a point where your benefit is eliminated, you’ll get credit for each “lost” month once you reach FRA.
As you most likely already know, your Social Security benefit is reduced based upon the number of months prior to FRA that you’ve applied for and begin receiving benefits. For every month that your benefit is eliminated (that is, reduced and withheld by SSA) due to over-earnings prior to FRA, those months will be credited back to your account, reducing the number of months that were originally used to calculate your reduced early retirement benefit.
As with all of these explanations, an example is in order. Dick, age 62, has a Primary Insurance Amount of $2,000. When he files for benefits at age 62 his benefit is reduced by 30%, to $1,400. Dick is still working, and his job pays him $60,000 per year ($5,000 per month). With that income, Dick’s Social Security benefit will be reduced by $2 for each dollar over $1,950 that he earns. So $5,000 minus $1,950 equals $3,050, so his benefit will be reduced by $1,525 – more than his reduced benefit amount of $1,400. This means his benefit will be completely withheld while he earns his $60,000 per year paychecks.
In the year that Dick reaches FRA, his earnings are under the earnings limit, which works out to $62,160 for 2025. For the sake of this example, let’s just say Dick reaches FRA in January, so he has no months of earnings during the year when he’s under FRA.
When Dick reaches FRA, assuming he’s continued earning at that same pace up to that point, he will begin receiving his benefit at the same amount as if he had waited until FRA to apply for the benefit. This is because he’s gotten credit back for all of those months that he had his benefit withheld.
Why would Dick do this, you might ask? It’s hard to say, there’s really not much to be gained by such a move. However, in some other circumstances, such as if Dick’s income was considerably less, closer to the annual earnings limit, which would result in his receiving at least some of the benefit while still earning. This of course would result in a much smaller increase when he reaches FRA – but he’s been receiving at least some limited benefits for several years in the interim.