Over 65 And Working? Watch Out For This Social Security Penalty

Planning to work past 65 while collecting Social Security benefits seems like a smart financial move. Extra income can boost your retirement security and extend your savings.

But hidden in the rules is a penalty that can catch retirees off guard — one that could cost you thousands of dollars if you don’t prepare. The key lies in understanding the earnings limits, how they apply, and the strategies you can use to protect your benefits.

What Is the Social Security Earnings Penalty?

If you claim Social Security before your Full Retirement Age (FRA) and continue to work, your benefits are subject to an earnings test. This means:

• If you earn above the annual limit, part of your benefits will be withheld.
• Once you reach FRA, this penalty disappears — you can earn unlimited amounts without reductions.

2025 Earnings Limits at a Glance

Here are the updated figures for 2025 that every retiree should know:

Situation	2025 Earnings Limit	Penalty Rate	Earnings Counted
Under FRA all year	$23,400 (≈ $1,950/month)	$1 withheld for every $2 earned above limit	Wages, self-employment income, bonuses, commissions, vacation pay
Reaching FRA in 2025	$62,160 (before the month you reach FRA)	$1 withheld for every $3 earned above limit	Same as above
After FRA	No limit	None	Unlimited earnings

How the Penalty Works in Real Life

• If you’re under FRA and earn $30,000 in 2025, you are $6,600 over the $23,400 limit. That means $3,300 in benefits will be withheld.
• If you reach FRA in August 2025, only earnings from January–July are counted toward the $62,160 limit. Starting in August, the earnings cap disappears.
• Once you reach FRA, withheld benefits are not lost forever. Your payments are recalculated, often increasing your future monthly check.

What Counts vs What Doesn’t

Counts toward the earnings limit:

• Wages from employment
• Net self-employment income
• Commissions, bonuses, overtime, vacation pay

Does not count:

• Pensions and annuities
• IRA or 401(k) withdrawals
• Investment income (dividends, capital gains, interest)
• Veterans or other government benefits

Monthly Exemptions

• Under FRA: You’re considered retired in any month you earn $1,950 or less.
• Reaching FRA in 2025: You’re considered retired in any month you earn $5,180 or less before your birthday.

Special rules apply to the self-employed: working more than 45 hours a month in your business, or 15–45 hours in a highly skilled role, may count as substantial work.

New 2025 Tax Break for Seniors

Thanks to a newly passed measure, seniors aged 65 and older may qualify for a $6,000 temporary tax deduction. This deduction applies broadly to income, not just Social Security.

Eligibility requires a modified adjusted gross income (MAGI) of up to $75,000 for singles or $150,000 for couples. The deduction phases out above these levels and ends completely for single filers above $175,000 or couples above $250,000. Currently, this benefit is set to expire at the end of 2028.

Four Smart Strategies to Protect Your Benefits

1. Delay claiming Social Security. Every year you wait beyond FRA up to age 70 increases your benefit by 8%.
2. Time your retirement year wisely. If retiring mid-year, ensure high-earning months occur before claiming benefits.
3. Use non-counted income sources. Build cash flow from pensions, rental income, or investments that don’t trigger the penalty.
4. Track earnings monthly. Stay under the threshold by monitoring paychecks, especially if you’re close to the limit.

Working past 65 is becoming more common, but retirees need to understand the earnings limits tied to Social Security benefits. In 2025, the key thresholds are $23,400 if you’re under FRA and $62,160 if you reach FRA during the year.

Knowing what counts as income, how penalties are applied, and how to plan strategically can help ensure you don’t lose out on thousands of dollars. With smart timing and financial planning, you can keep working, earning, and maximizing every benefit you deserve.

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