Still working past 65? The Social Security penalty hiding in plain sight
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Still working past 65? The Social Security penalty hiding in plain sight
Kat Aoki November 11, 2025 at 7:46 AM
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Working past 65? The Social Security penalty hiding in plain sight (Halfpoint Images via Getty Images)
Planning to work past 65 while collecting Social Security? It’s a smart decision that can boost your overall retirement, yet one that could cost you thousands if you don’t plan carefully.
That’s because Social Security has earnings limits that most people don't know about until it's too late. Here's what you to stay ahead of the rules and keep collecting every dollar you deserve.
⭐️ Must read: 7 big changes coming to Social Security in 2026 (one that could shrink your check)
The penalty catching retirees off-guard
If you're already collecting Social Security benefits and under your full retirement age (that’s age 67 for most people), earning more than the yearly earnings limit will trigger benefit reductions. This only affects people who've started claiming their Social Security payments while continuing to work.
For 2025, if you're under full retirement age all year and collecting Social Security benefits, the annual earnings limit is $23,400. Earn over that amount, and Social Security deducts $1 from your benefit payments for every $2 you earn above this limit.
📝 How it actually works
Take Maria, age 64. She gets $1,200 monthly in Social Security and works part-time for $28,000 a year. Since she’s $4,600 over the earnings limit ($28,000 less $23,400), Social Security reduces her benefits by half that — or $2,300 — for the year.
💡 Remember: If you haven't started collecting Social Security benefits yet, these earnings limits don't apply to you.
Your FRA year plays by different rules
The earnings test rules change significantly in the year you reach full retirement age, creating a complex but ultimately favorable transition period:
Higher earnings limit. In the year you reach your full retirement age (age 67 for anyone born in 1960 or later), the earnings limit jumps to $62,160 up to the month before your birthday — more than 2.5 times higher than the $23,400 limit that applied in previous years. The penalty also drops to $1 for every $3 earned over it.
Only part of the year counts. Once you reach full retirement age, the earnings limits stop immediately — even if it's mid-year. For example, if you turn 67 in June, only your January to May earnings count toward the $62,160 limit.
No limits after full retirement age. Once you hit full retirement age, the earnings cap disappears completely.
📝 How it actually works
Say you're turning 67 in October and entitled to $800 in monthly Social Security benefits. You earn $68,000 from January through September before turning 67 — that's $5,840 more than the $62,160 limit.Social Security will reduce your benefits by $1,947 for those nine months ($5,840 divided by 3). Come October, when you turn 67, you can earn as much as you want without penalty.
🔍 Read more: 2026 Social Security COLA is here — but it won't be enough for most retirees
What Social Security counts as earnings
When Social Security figures out how much to deduct from your benefits, they count only the wages you make from your job or your net profit, if you're self-employed. This includes bonuses, commissions and vacation pay.
They don't count pensions, annuities, investment income, interest, veterans benefits or other government or military retirement benefits.
🔍 Read more: How much can you earn while on Social Security?
The monthly earnings escape hatch
If you’re under full retirement age for all of 2025, you’re considered retired in any month that your earnings are $1,950 or less.
If you reach full retirement age in 2025, you’re considered retired in any month that your earnings are $5,180 or less
In both cases, you can’t have performed “substantial services in self-employment,” which means either:
Working more than 45 hours a month in your business
Working 15 to 45 hours a month in your business in a highly skilled occupation
🔍 Read more: Social Security’s blind spot: 9 hidden costs that catch retirees off guard
Withheld benefits aren't lost forever
The good news? Those withheld benefits aren't gone permanently. When you reach full retirement age, Social Security recalculates your benefits and gives you credit for any months when benefits were reduced or withheld due to excess earnings, potentially resulting in higher monthly payments going forward.
🔍 Read more: What’s the typical Social Security check? (Probably less than you think)
New tax break for working seniors
Under the One Big, Beautiful Bill Act signed into law on July 5, 2025, qualifying seniors can claim a temporary $6,000 tax deduction that applies to all income — not only Social Security benefits. You must be age 65 and older earning modified adjusted gross income of up to $75,000 as a single filer or up to $150,000 filing jointly.
The benefit gradually reduces for seniors earning more than $75,000 (or couples earning more than $150,000), with no benefit for single filers earning more than $175,000 (or couples earning more than $250,000). Without extensions, these benefits are due to expire at the end of President Trump's term in 2028.
🔍 Read more: Big tax changes are coming: 13 rules that may boost your refund — or shrink it
4 smart strategies to outsmart the system
Want to squeeze every dollar out of your Social Security benefits? Keep these four strategies in mind:
Time your claim carefully. If you're working at a high salary into your 60s, consider delaying Social Security until your full retirement age — or even age 70. Every year you wait past your full retirement age, your benefits increase by 8%.
Plan your retirement year strategically. If you’re retiring mid-year, time it so your highest-earning months occur before you start claiming benefits.
Focus on non-counted income. Build retirement income from sources that don't trigger the earnings test, like investment accounts, pensions or rental properties.
Monitor your earnings monthly. If you're close to the limits, track your earnings throughout the year to avoid surprises.
🔍 Read more: Retirees warn: Don't make these 9 Social Security mistakes
The bottom line
Social Security's earnings limits can significantly affect your retirement income if you're unprepared. However, once you reach full retirement age, you can earn unlimited amounts without affecting benefits. The key is understanding the rules and planning accordingly.
Editor’s note: Social Security rules are complex and subject to change. When in doubt, call the Social Security Administration directly for personalized guidance.
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About the writer
Kat Aoki is a finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to help consumers and business owners make informed decisions and choose the right financial products for their needs.
Article edited by Kelly Suzan Waggoner
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Source: “AOL Money”
