Separate claiming-age reductions, the 2025 earnings test and benefit taxation. A working retiree example shows how withholding affects expected cash flow.
June 2, 2025 · Financial Forte Staff
Historical article: prepared retrospectively using information available as of June 2, 2025.
Continuing to work can be part of a good retirement plan. You may enjoy the routine, want additional income or prefer a gradual transition. The question of when to claim Social Security should be evaluated alongside that decision, because earning a paycheck and receiving benefits do not always combine in the way people expect.
Separate three issues: the effect of claiming age on your benefit, the retirement earnings test before full retirement age and the taxation of benefits. Each can change the cash available to you, but they operate under different rules. Understanding those differences helps you compare claiming now with waiting.
Know which earnings rule applies to you
For 2025, someone below full retirement age throughout the year can generally earn $23,400 before the retirement earnings test withholds $1 of benefits for each $2 of earnings above that amount. In the year full retirement age is reached, a higher $62,160 limit and a $1-for-$3 rule apply to earnings before the month that age is reached. Beginning with that month, the retirement earnings test no longer limits benefits based on work earnings.[1]
This test generally counts wages and net self-employment earnings, not ordinary investment income, pension income or IRA distributions. Those other income sources can still matter for taxes and the broader plan. Special rules, including a possible monthly test in the initial year of retirement, can change the result in particular circumstances.[2]
Do not simply divide an annual limit by the months you expect to work and assume that is your personal rule. Confirm the applicable treatment with Social Security, especially when work stops or begins during the year or self-employment is involved.
Follow the effect through an annual example
Consider a hypothetical worker, Maya, age 63, who remains below full retirement age throughout 2025. Assume she receives a $1,500 monthly retirement benefit before any earnings-test withholding, taxes or other deductions. Her annual scheduled benefit is $18,000. Assume the regular annual earnings test applies and she expects $33,400 of countable wages.
Her wages exceed the $23,400 limit by $10,000. Under the $1-for-$2 rule, the illustrated annual benefit withholding is $5,000. Subtracting the $5,000 from $18,000 leaves $13,000 of scheduled annual benefits after this adjustment, before taxes and other deductions. Her combined wages and adjusted benefits would be $46,400 under the simplified assumptions, not the $51,400 she might calculate by adding the full scheduled benefit to her wages.
Actual payment timing may involve withholding whole monthly checks and later adjustments. Maya should not budget on the assumption that the $5,000 is spread evenly across twelve deposits. She also needs to report material changes in expected earnings, including additional shifts or a new job, so the agency can administer the withholding appropriately.
If Maya earns less than expected or changes her work plans, the final calculation may differ. The example is a planning estimate, not a determination of her benefit or the exact payment schedule she would receive.
Distinguish withholding from claiming early
Claiming a retirement benefit before full retirement age generally reduces the monthly amount relative to the full-retirement-age benefit. Delaying an eligible worker's own retirement benefit beyond full retirement age can increase it through delayed retirement credits up to age 70. Those age-related rules are separate from the earnings test.[3]
Benefits withheld under the earnings test are not simply treated as permanently lost payments. At full retirement age, Social Security adjusts the benefit calculation to account for months in which benefits were withheld under the applicable rules. That does not mean the person receives an immediate dollar-for-dollar refund of all withheld benefits.[3]
For Maya, the decision should compare the cash she would receive while working with the benefit available under later claiming dates. Her health, savings, household needs and any spouse or survivor considerations belong in that comparison. Waiting can increase future monthly income, but it may require other resources in the meantime.
It is also possible to stop working without claiming immediately, or to continue working while delaying the claim. Retirement from a job and the start of Social Security are related decisions, not a single mandatory event.
Include taxes and the rest of your income plan
The federal taxation of Social Security uses its own income calculation. Wages, other income and part of the Social Security benefit can affect how much of the benefit is included in taxable income. The statement that up to 85% of a benefit can be taxable does not mean the benefit is taxed at an 85% rate.[4]
A household can therefore be past the retirement earnings test and still owe tax on benefits. Conversely, an earnings-test calculation does not by itself establish the tax bill. Ask the tax preparer to estimate the combined result, including any state treatment and the withholding or estimated payments needed.
Review healthcare and workplace benefits as well. A move to part-time work may change employer coverage, and delaying Social Security does not automatically resolve Medicare enrollment decisions. Confirm those timelines separately before ending or reducing employment.
Gather your Social Security estimates, expected work earnings, other income and realistic spending needs. Compare a few defined claiming dates using benefits calculated for those dates, including how the plan works if employment ends earlier than expected. The goal is to choose a combination of work and benefits that supports your life, with a clear understanding of the checks you can actually expect to use.
Related reading
- Working While Claiming Social Security: What to Check First
- Choosing a Social Security Date as a Couple
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Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.
Sources
- [1] SSA 2025 Social Security Changes fact sheet — 2025 fact sheet announced for 2025 in October 2024
- [2] 42 USC 403 — 2023 United States Code — 2023 statutory edition; SSA Annual Statistical Supplement 2023: Program description — 2023 edition
- [3] SSA Annual Statistical Supplement 2023: Program description — 2023 edition
- [4] IRS Publication 915 (2023) — 2023-11-30
