The number of Americans working at retirement age continues to rise, with the age 65 and over demographic comprising a significantly larger part of the over-55 workforce, increasing from 23 percent to 29.3 percent between 2000 and 2023, according to EBRI.
Older Americans are largely remaining in the workforce due to a lack of adequate retirement savings, job layoffs, and higher prices due to stubbornly high inflation. Yet workers in their 60s, especially, need to be careful if they’re considering taking Social Security at the same time. Doing so may reduce benefits for the short term, until they reach full retirement age.
“For those not at full retirement age and still working but collecting Social Security, a temporary reduction in benefits that isn’t permanent will occur,” said Michael Boggiano, managing partner at Wealthcare Financial, by email.
For example, in 2025, Social Security will deduct $1 from your benefits for every $2 you earn over $22,320. “Luckily, these reductions aren’t a permanent thing,” Boggiano added. “Once the retiree hits their full retirement age, their monthly benefits will be recalculated to account for the amount that was withheld.”
U.S. workers taking Social Security shouldn’t fret too much—they eventually get the money back once they reach full retirement age (in their 66th year if born before 1960 and age 67 thereafter).
“This isn’t a permanent loss, as most people believe,” said Lynn Toomey, founder of the retirement planning platforms Her Retirement and Retirement Solved, via email. “Once you reach your full retirement age, Social Security recalculates your benefit to give you credit for the months your payments were reduced.”
Once you hit your full retirement age, Social Security adjusts your monthly benefit upward to account for the months when benefits were withheld. “Think of it like a delayed payback,” Toomey said. “They’re holding some of your benefits temporarily and giving them back to you over time, starting at full retirement age. But it’s not a lump sum repayment. It’s a higher ongoing monthly payment.”
The SSA’s deferred payment rule is based on what the agency refers to as the "earnings test."
“The test essentially reduces or limits your Social Security benefits if you’re taking Social Security while still working and making more than $22,310 annually,” Boggiano said. “So, if you earn more than the earnings limit of $22,320 while taking Social Security, your benefits will be temporarily reduced.”
That’s why older U.S. workers need to understand a few nuances tied to the earnings test rule.
“For those working and collecting social security, $1 is withheld for every $2 you earn above the earnings limit,” Boggiano added. “Social Security lightens that limit from $2 to $3 in the calendar year that the retiree reaches full retirement age. It might feel like a penalty upfront, but retirees will still recover some of that lost value later.”
Americans over the age of 62, which is the earliest age at which a worker can take Social Security, should weigh the pros and cons of taking SSA cash out while still in the workforce.
“Make sure to run your numbers carefully (or better yet, have a retirement expert run them for you,” Toomey said. “This projection helps you make educated decisions about your Social Security and your other retirement income sources, as they are integrated. Taking benefits early while working might not make sense if you’re earning enough to trigger reductions.”
Additionally, working Americans considering taking Social Security payments should factor in their likely longevity. “If you can afford to delay taking benefits (and you expect to live a long time), waiting can mean a significantly higher lifetime payout,” Toomey noted. “So be strategically smart. Sometimes it can make sense to 'test the retirement waters' with a partial year of work or a phased retirement approach to minimize earnings over the limit, especially if you’re close to full retirement age.”
Pay attention to payment timetables, too. For example, if you’re still working, any reductions in your Social Security payments typically don’t happen during the first payment year.
“The SSA will likely send you a notification of overpayment and ask that you repay the amount to them quickly,” said Kevin Thompson, a certified financial planner and founder at 9i Capital Group in Fort Worth, Texas, by email.
That may come as a shock if you've already spent the money, but the SSA has a remedy.
“If you cannot repay them, the SSA will address it by withholding future payments until the debt has been repaid,” Thompson noted. “The agency makes this move as Social Security payouts get missed due to timing, and these clarifications normally come up the following tax year. It’s important to have people on your team who are aware of this, so you’re not left blindsided.”
It’s also worth noting that the temporary SSA payment reduction only counts wages—annuities, pensions, and other income sources don’t count.
“To figure it all out, work with a trusted money manager who can help you maximize the amount of money you’re bringing in,” Thompson said. “A specialist can run some scenarios to show you the right timing for taking Social Security and how to minimize any penalties, if any apply. Social Security maximization is one of the most powerful planning tools for retirees, and it needs to be done right.”
The views and opinions expressed are those of the interviewees. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.