Many retirees choose to keep working after claiming Social Security, seeking extra income to offset rising costs and stay socially engaged.
However, collecting benefits while earning a paycheck comes with a little-known rule that can result in reduced monthly payments if you are not careful.
Social Security’s earnings test applies specifically to those who have claimed benefits before reaching full retirement age, which is 67 for anyone born in 1960 or later.
The test sets an annual income threshold, and earning beyond that limit triggers automatic withholding of a portion of your Social Security benefits.
In 2026, recipients who will not reach full retirement age by year’s end can earn up to $24,480 before the Social Security Administration begins withholding benefits.
Beyond that threshold, the Social Security Administration withholds $1 in benefits for every $2 earned above the limit, which can add up quickly for higher earners.
For those who will reach full retirement age before the end of 2026, a more generous limit of $65,160 applies, with $1 withheld per $3 earned above that amount.
The withheld money is not permanently lost, as the Social Security Administration recalculates monthly payments at full retirement age and returns those funds through larger checks.
That long-term recovery offers little comfort, however, to retirees who depend on both their wages and Social Security to meet immediate expenses like utility and grocery bills.
Importantly, only earned income counts toward the earnings test, meaning withdrawals from an IRA or 401(k) do not factor into the calculation and will not trigger any benefit withholding.
Retirees who anticipate exceeding the earnings limit can use retirement account withdrawals to cover short-term cash shortfalls without further affecting their monthly Social Security payments.
Understanding these rules in advance is essential, because an unexpected reduction in monthly benefits can create serious financial strain for those living on a fixed income.
