Social Security Earnings Limit Explained (2026):
Claiming Social Security before your full retirement age has become increasingly popular. Some retirees want to begin collecting benefits as early as possible because they're concerned about the future of Social Security. Others simply want to enjoy retirement sooner or supplement part-time income.
However, there's one important rule that catches many people completely by surprise: the Social Security earnings limit.
Every year, thousands of Americans file for Social Security before reaching their full retirement age, only to discover that their monthly benefit checks are reduced—or even withheld entirely—because they continue working.
The good news is that this rule isn't as bad as many people fear once you understand how it works. The key is knowing when it applies, what counts as earned income, and how the Social Security Administration eventually adjusts your benefits.
If you're considering claiming Social Security before your full retirement age while continuing to work, understanding these rules could save you from making an expensive retirement planning mistake.
What Is the Social Security Earnings Limit?
The Social Security earnings limit—officially called the Retirement Earnings Test—applies only to people who:
- Claim Social Security before reaching their Full Retirement Age (FRA).
- Continue earning income through work.
For most Americans retiring today, full retirement age is 67.
If you begin collecting benefits before reaching that age and continue working, the Social Security Administration limits how much earned income you can make before temporarily withholding part of your Social Security benefit.
This often surprises retirees because they assume they can simply collect benefits while working full-time. Unfortunately, that's not always the case.
Understanding this rule before filing can help you decide whether claiming benefits early truly makes financial sense.
Don't Confuse the Earnings Limit with Other Social Security Rules
One reason this topic creates so much confusion is because several completely different Social Security rules sound very similar.
The earnings limit discussed in this article is not the same as:
The Social Security Taxable Wage Base
For 2026, Social Security payroll taxes only apply to wages up to $184,500. Income above that amount is no longer subject to Social Security payroll tax.
This rule affects payroll taxes—not retirement benefits.
Social Security Benefit Taxation
Another common misunderstanding involves whether Social Security benefits are taxable.
Your benefits may become partially taxable depending on your overall income during retirement. This has nothing to do with the earnings limit.
Many retirees accidentally combine these three completely separate rules into one conversation, making retirement planning far more confusing than it needs to be.
When discussing the earnings limit, we're talking only about the reduction of Social Security benefits caused by continuing to earn wages before reaching your full retirement age.
2026 Social Security Earnings Limit
The Social Security Administration updates these limits annually.
If You Are Younger Than Your Full Retirement Age
In 2026, you may earn up to:
$24,480
Once your earned income exceeds that amount, Social Security withholds:
$1 in benefits for every $2 earned above the limit.
During the Year You Reach Full Retirement Age
The rules become more generous.
The earnings limit increases to:
$65,160
During that year, Social Security withholds:
$1 for every $3 earned above the limit.
After Reaching Full Retirement Age
Once you officially reach your full retirement age, the earnings limit disappears completely.
You may earn as much as you like without having your Social Security benefits reduced because of work.
A Simple Example
Suppose you decide to claim Social Security at age 62.
Your monthly benefit is $1,200.
You also continue working and earn $30,000 during the year.
Because your earnings exceed the 2026 limit by $5,520, Social Security withholds half of that excess.
That means:
- Excess earnings: $5,520
- Benefits withheld: $2,760
Many people assume Social Security simply deducts a little from each monthly check.
That's not how it works.
Instead, the Social Security Administration generally withholds entire monthly benefit checks until the required amount has been recovered.
In this example, the first two monthly checks would likely be withheld entirely, and part of a third payment would also be withheld before normal monthly benefits resumed.
This surprises many retirees because they expected twelve monthly checks but instead receive fewer payments during the year.
Why This Rule Exists
Many retirees ask a reasonable question:
"I've paid into Social Security my entire working life. Why can't I collect my benefits while still working?"
The Retirement Earnings Test reflects the original purpose of Social Security.
Social Security was designed primarily as a retirement benefit rather than a supplemental income program for people still actively working.
The earnings limit encourages workers who continue earning significant wages to delay collecting benefits until later.
Whether someone agrees with the policy or not, understanding how it works is essential before deciding when to file for benefits.
What Counts as Earned Income?
This is where many retirees become confused.
Not all income counts toward the earnings limit.
The Social Security Administration focuses primarily on earned income, not retirement income.
Income That DOES Count
- W-2 wages
- Salaries
- Bonuses
- Commissions
- Net earnings from self-employment
If you're still actively working, these forms of compensation generally count toward the annual earnings limit.
Self-employed individuals should pay particular attention because the calculation is based on net self-employment earnings after allowable business expenses, not total business revenue.
This distinction can make a significant difference for consultants, contractors, freelancers, and small business owners.
Income That Does NOT Count
Fortunately, many common retirement income sources are completely excluded from the earnings test.
These generally include:
- IRA withdrawals
- 401(k) distributions
- Pension income
- Annuity payments
- Interest income
- Dividend income
- Capital gains
- Passive rental income
- Veterans benefits
This is excellent news for many retirees.
For example, someone who retires at age 62 may supplement their Social Security by withdrawing money from an IRA without those withdrawals counting against the earnings limit.
That's because retirement account distributions are not considered earned income.
Understanding this distinction often provides retirees with much greater flexibility when building an income strategy during the early years of retirement.
The Gray Area: Does 1099 Income Count?
One of the most common questions retirees ask is whether 1099 income counts toward the Social Security earnings limit.
The answer is: it depends.
Many Americans earn income after retirement through consulting, freelance work, independent contracting, or small businesses. Because that income is reported differently than traditional wages, it's easy to assume it isn't subject to the earnings test.
Unfortunately, that's not always true.
If your 1099 income comes from actively working, then your net earnings generally count toward the earnings limit.
For example, if you're a:
- Consultant
- Freelance designer
- Contractor
- Real estate professional actively managing clients
- Business owner actively providing services
Your net self-employment income after deductible business expenses is generally considered earned income.
That means it may reduce your Social Security benefits if you claimed before reaching full retirement age.
Passive Income Is Different
Not every 1099 automatically counts against the earnings limit.
Income that is considered passive generally does not count.
Examples include:
- Dividend income
- Interest income
- Capital gains
- Most investment income
- Many rental property situations
Consider someone who owns a rental home.
If they're simply collecting rent while a property manager handles the day-to-day responsibilities, that rental income generally isn't considered earned income for purposes of the Social Security earnings limit.
However, if they're actively operating multiple rental properties as a business, personally managing tenants, maintenance, and operations, the situation becomes much more complex.
Understanding whether your income is active or passive can make a significant difference in your retirement strategy.
Can You Withdraw From Your IRA Without Affecting the Earnings Limit?
This is one of the biggest misconceptions surrounding early Social Security claiming.
Many retirees worry that withdrawing money from their retirement savings will push them over the earnings limit.
Fortunately, that's usually not the case.
Withdrawals from retirement accounts generally do not count as earned income.
This includes:
- Traditional IRA distributions
- 401(k) withdrawals
- 403(b) distributions
- Pension payments
- Annuity income
These income sources may affect your taxes, but they typically do not trigger the Retirement Earnings Test.
This gives many retirees tremendous flexibility during the early years of retirement.
Instead of continuing to work enough hours to exceed the earnings limit, they may choose to supplement their Social Security with retirement savings instead.
What If You Retire in the Middle of the Year?
Another area that causes unnecessary anxiety involves people who retire halfway through the calendar year.
Imagine this scenario.
You work full-time through June and earn a substantial salary.
You retire in July and immediately begin collecting Social Security benefits.
Looking only at your total annual income, it might appear you've greatly exceeded the earnings limit.
Fortunately, Social Security recognizes this situation.
There is a special rule that often applies during the first year of retirement.
Rather than simply looking at your annual wages, Social Security may evaluate your monthly earnings after you retire.
If you truly stopped working—or only work enough hours to stay below the monthly limit—you may still qualify to receive benefits even though your total earnings for the year appear much higher.
This exception helps individuals transition into retirement without being unfairly penalized because they earned most of their income before they ever began collecting benefits.
One Retirement Mistake Many People Don't Expect
Retirement isn't always what people imagine.
Many new retirees spend months looking forward to unlimited free time, travel, hobbies, and relaxation.
Then something unexpected happens.
The excitement wears off.
After the "honeymoon phase" of retirement ends, some retirees begin experiencing boredom, loss of routine, and a reduced sense of purpose.
It's common for retirees to decide they want to return to work—not because they need the income, but because they miss having structure, relationships, and meaningful daily activity.
This is exactly where the Social Security earnings limit can suddenly become a major issue.
If you claimed benefits early and later decide to return to work full-time, you could quickly exceed the annual earnings limit.
Many retirees never considered this possibility when they originally filed for Social Security.
Returning to Work Can Change Everything
Suppose someone claims Social Security at age 62.
For the first year, everything goes according to plan.
They're enjoying retirement.
Then they receive an attractive job offer.
Perhaps they miss working.
Maybe inflation has increased living expenses.
Or perhaps they simply want additional income to travel or help family members.
Whatever the reason, they return to full-time employment.
Suddenly, they're earning far more than the annual earnings limit allows.
The result?
Social Security begins withholding benefits.
For many retirees, this feels like a surprise penalty—even though the rule has existed for decades.
That's why retirement planning shouldn't focus only on the day you retire.
It should also consider how your plans might evolve over the next five, ten, or even twenty years.
Are Those Withheld Benefits Gone Forever?
This is perhaps the biggest misunderstanding surrounding the Social Security earnings limit.
Many people believe that once Social Security withholds their benefits, the money is simply gone forever.
Thankfully, that's not how the system works.
The benefits are generally not permanently lost.
Instead, the Social Security Administration keeps track of every month in which your benefits were withheld because of the Retirement Earnings Test.
Once you reach your full retirement age, those withheld months are taken into account when your benefit is recalculated.
However, the money does not come back as one large payment.
This surprises many retirees who assume they'll eventually receive a lump-sum reimbursement.
That isn't how the adjustment works.
How Social Security Gives the Money Back
When you reach your full retirement age, Social Security reviews your record.
They determine how many months of benefits were withheld because of excess earnings.
Then they recalculate your monthly benefit as though you had claimed later than you actually did.
For example, imagine you claimed at age 62.
Your early filing permanently reduced your monthly benefit because you started five years before your full retirement age.
Now suppose one full year of benefits was withheld because your earnings exceeded the annual limit.
Instead of treating you as someone who effectively collected benefits beginning at age 62, Social Security recalculates your benefit more like someone who effectively began collecting at age 63.
Because your adjusted claiming age is later, the permanent reduction becomes smaller.
Your monthly benefit increases beginning at your full retirement age and continues at that higher amount for the rest of your life.
In other words, you eventually receive compensation for those withheld months—but through a larger monthly benefit rather than a reimbursement check.
An Example of the Recalculation
Let's look at a simplified example.
Suppose you claimed Social Security at age 62 and your monthly benefit was $910.
Over the next several years, you continued working enough that one full year of Social Security benefits was withheld because your earnings exceeded the annual limit.
When you reach your full retirement age, Social Security recalculates your benefit.
Instead of treating you as someone who permanently claimed at age 62, your benefit is adjusted as though your claiming date effectively occurred one year later.
Your monthly benefit might increase from approximately:
- $910 per month
- to roughly $975 per month
That higher monthly benefit continues for the rest of your life, plus any future Cost-of-Living Adjustments (COLAs).
While you don't receive a lump-sum reimbursement for the withheld checks, you generally recover the value over time through larger monthly payments.
Should You Still Claim Social Security Early?
The earnings limit doesn't necessarily mean claiming Social Security before full retirement age is a bad decision.
In fact, there are situations where claiming early can still make excellent financial sense.
Examples include:
- You have health concerns or a shorter life expectancy.
- You retire completely and don't expect to work again.
- You need income before other retirement assets become available.
- Your retirement plan has been carefully coordinated with taxes, investments, and survivor benefits.
On the other hand, delaying benefits may be more appropriate if:
- You plan to continue working full-time.
- Your earnings will exceed the annual limit.
- You want to maximize survivor benefits for your spouse.
- You expect to live well into your 80s or beyond.
There is no universally correct claiming age.
The right answer depends on your income, health, family situation, tax picture, retirement assets, and long-term goals.
The Importance of a Social Security Strategy
Social Security represents one of the largest retirement assets many Americans will ever receive.
Unfortunately, many filing decisions are based on advice from friends, coworkers, neighbors, or internet headlines rather than a comprehensive retirement income strategy.
Claiming benefits too early—or waiting too long—can have lasting consequences.
The earnings limit is only one piece of the puzzle.
A complete Social Security strategy should also consider:
- Marital status
- Survivor benefits
- Life expectancy
- Taxes
- Retirement income needs
- Investment withdrawals
- Healthcare costs
- Future employment plans
Every retirement plan is unique, and your Social Security filing decision should fit into your overall financial plan rather than being made in isolation.
Final Thoughts
The Social Security earnings limit often sounds intimidating, but understanding the rules removes much of the uncertainty.
Remember these key takeaways:
- The earnings limit only applies before your full retirement age.
- Only earned income generally counts.
- IRA withdrawals, pensions, investment income, and most passive income do not count.
- Benefits withheld because of excess earnings are generally not lost forever.
- Your monthly benefit is typically recalculated at full retirement age to account for withheld months.
Most importantly, don't let a single rule determine your entire claiming strategy.
Social Security is just one component of a successful retirement income plan.
Working with a financial professional who can evaluate your complete financial picture may help you make a more informed decision about when—and how—to claim your benefits.
Frequently Asked Questions About the Social Security Earnings Limit
What is the Social Security earnings limit?
The earnings limit is a rule that temporarily reduces Social Security benefits for people who claim before full retirement age while continuing to earn wages or self-employment income above annual limits.
What is the 2026 Social Security earnings limit?
For 2026, the annual earnings limit is $24,480 before full retirement age. During the year you reach full retirement age, the limit increases to $65,160.
Does my pension count toward the earnings limit?
No. Pension income generally does not count as earned income for purposes of the Retirement Earnings Test.
Do IRA withdrawals count toward the Social Security earnings limit?
Generally, no. Withdrawals from retirement accounts such as IRAs and 401(k)s are not considered earned income.
Does investment income count?
Interest, dividends, capital gains, and most passive investment income generally do not count toward the earnings limit.
Does self-employment income count?
Yes. Net earnings from active self-employment generally count toward the annual earnings limit.
What happens if I exceed the earnings limit?
Social Security temporarily withholds part of your benefits based on the amount your earnings exceed the annual limit.
Are withheld benefits permanently lost?
No. Social Security generally recalculates your monthly benefit when you reach full retirement age, increasing future monthly payments to account for months in which benefits were withheld.
Do I receive a lump-sum repayment?
No. The adjustment usually comes through a higher monthly benefit rather than a one-time payment.
Should everyone wait until age 70?
No. The best claiming strategy depends on your individual circumstances, including health, income needs, retirement assets, marital status, taxes, and future employment plans.
Can my spouse's income reduce my Social Security benefit?
No. The Retirement Earnings Test generally applies only to your own earned income, not your spouse's wages.
Can I work after reaching full retirement age?
Yes. Once you reach full retirement age, you may generally earn unlimited income without triggering the Social Security earnings limit.
Daniel Wendol
Item #1
00:00:01 – 00:00:56
[snorts] We’ve done some recent shows about why it makes sense to claim social security as early as possible. And a lot of people are latching on to this idea of claiming social security early. What’s early? Before your full retirement age, which for most people that are watching is age 67. The problem is, and and just imagine if you do, let’s say you’re 63 and you go to claim social security early, you might start hearing people chirping and saying, “Don’t forget about the earnings
00:00:28 – 00:01:30
limit.” And you say, “Whoa, whoa, whoa. What’s that? What’s that?” The earnings limit has to do with earning income while also claiming social security. And because you’re claiming social security early, it matters. The government gets involved. So today, I want to explain what the earnings limit is and explain how you can work and claim social security. There are rules about it. I want to go through the rules, make sure you understand it. What is income? What is an income? How much can you make?
00:00:59 – 00:01:59
What’s the limits? But most importantly, I want to talk about what happens to that money that you don’t get that the government withholds. A lot of people think it’s gone. Some people think you get it when you fully retire. It’s a combination. It’s not that easy. Speaking of being not easy, let me bring in my co-host, Tony Shore. Tony, welcome to the show. We’re talking about the earnings limit. You know what’s very popular lately has been our show on claiming social security early. Yeah.
00:01:28 – 00:02:30
>> Right. Early being 62 or before 67. >> Lots of people are claiming at 62, Dan. Uh because of a number of things. They’re either worried that social security isn’t going to be around. So, they want to claim it as soon as possible or they do it because they heard you talk about positives to claiming early or most of them just do it because their neighbor did it or someone they they respect, oh, this guy at work, he’s a sharp cookie and he said, “I got a claim at 62.”
00:02:00 – 00:02:44
>> Yeah. And when they do it, then they get hit with his earnings limit that they didn’t think about. So, I want to talk about it today. But if you haven’t seen our show on claiming it early at 62 and why you should watch it. But when you’re thinking about that, make sure you’re also considering the earnings limit. So, let me first start by saying this can get confusing because when I say earnings limit, people don’t necessarily know what I mean. There’s usually three
00:02:22 – 00:03:18
different things that people get it confused with. Yes, >> we’re going to talk about the retirement earnings test, which has to do with claiming social security early and also making income. So, you’re still working and claiming social security. That’s what we’re going to talk about today. But a lot of people confuse the earnings limit with the taxable wage base, which right this year, 2026, is 184,500. Meaning that’s how much of your income, that’s a limit on your income that’s
00:02:50 – 00:03:49
taxed for social security purposes. So your wages you pay into social security. Once you hit above 184,500, you don’t pay into social security anymore. So people think that’s the earnings limit. That’s not what we’re talking about. That’s a separate rule. And a lot of people also get it confused with the $24,000 earnings uh tax taxation limit, meaning your income when you start claiming social security, social security can be taxed if you make above a certain amount. That’s taxable amount
00:03:20 – 00:04:11
of social security income. That’s a separate issue, too. We’ve done shows on that. You know, if you make above below a certain amount, all of your social security income is taxfree. Once you get above 24,000 as a single person, now half of it’s almost, you know, is it’s taxable up to half. And then once you get above another limit, 32,000, then 85% of it’s taxable. So that’s that’s not what we’re talking about today, but I just wanted to bring those up as don’t
00:03:45 – 00:04:49
be confused about those. Today we’re talking about the earnings limit of working and claiming social security. Okay. >> Yeah. So yeah, I have a great example when you’re ready for it of the problem with the earnings limit. >> Well, let me explain what the limits are and then I want to hear your example. >> So in 2026, the earnings limit if you’re under your full retirement age. So if you’re under age 67, for most of you, you can work and claim social security. And if you make more than 24,480
00:04:17 – 00:05:17
for the year, anything you make above that, half of it’s going to be withheld from your social security check. $1 of every two you make above that. Then once you reach the year you turn 67 or your full retirement age, you the limit jumps up to 65,160. And then they withhold one for every three above that. And then once you hit your full retirement age, you can claim social security and you can earn as much as you want. They’re not going to withhold anything from your social security check. I’ll give you a quick
00:04:48 – 00:05:43
example and then I want to hear yours, Tony. So, if you if you claim at 62 and you’re getting 1,200 a month from social security, that’s your reduced benefit amount, yet you’re still working and you earn 30,000, you’re above the limit. In fact, you’re $5,520 above the limit of what the government says you should earn. This is all set by the government, by the way. They’re saying you shouldn’t be claiming Social Security and working. It’s supposed to be retired benefit,
00:05:15 – 00:06:17
whatever. So, you’re claiming you’re making more than than the amount that they allow, 5,520 amount. You’re making 2760 is going to be withheld from your social security check. The first 2760, 2760 in this example will be withheld from your check. And they don’t just take it out of your little bit out of every social security check. They simply won’t give you the first two checks. They won’t give you that first check of 1,200. They won’t give you the second check of 1,200. So that’s 24,400 and then they
00:05:46 – 00:06:48
won’t give you $360 of the third check and then you’ll start getting the rest of the checks normally. So that’s how they withhold the earnings. Um that’s if you if you disobey the earnings limit or you ruin you go above it. Again, philosophically, they just don’t want you to work and claim social security. That’s what they’re trying to prevent. You have an example of someone >> I have a great example. A really good friend of mine, my next door neighbor, uh, who lived next to us for a long
00:06:17 – 00:07:33
time, since moved, but a really good friend. Um, one of the smartest people I know, uh, was an engineer, uh, developed, helped um, both Florida’s and Minnesota’s, uh, state court system go electronic. no more paper records for court documents. Uh he did it for Florida years ago and then he came to Minnesota and did it here and worked with the Supreme Court on projects like that. The state supreme court I should say. And um he made good money, right? Um you know, six figures plus uh he made
00:06:54 – 00:08:05
really good money, but he for some reason, you know, smart so but stubborn. For some reason, he got it into his head that somebody at work told him, “Do you take social security at 62?” He was worried about it not being there, worried about politics. Um, but he worked until he was 70, Dan. And he made at least 200,000 a year. So, what do you think happened to him? >> He claimed it early. He He didn’t see a single check, did he? >> No, he did not. And did he ask you, “Why
00:07:30 – 00:08:33
am I not getting my checks?” I claimed it. I’m not getting any. >> No. In fact, if uh we got along great, but the the one time he got angry with me is when I said uh I I said you you should never f you shouldn’t file at you shouldn’t have filed at 62. You’re going to I don’t want to cuz he had already it was too late. See, when I talked to him, and he he goes, “I don’t want to talk about that.” because he had found out the hard way. Uh he was very upset and
00:08:02 – 00:09:00
didn’t want anyone to mention if you mentioned the word social security to him, he he got ticked because he ended up having to work because his wife was much younger and didn’t wasn’t eligible for Medicare and he had great health care benefits >> because he was working for the state. So he but they they wouldn’t cover him uh or his wife if he quit. So they looked at the cost of that and he was making money so he just kept working and they wanted to put in a pool so he kept
00:08:30 – 00:09:25
working and yeah >> you know and that’s a ca it’s a case where it probably would have made sense for him to delay all the way to age 70 to protect him and >> he worked cuz he worked till age 70 >> and he’s and he’s and he’s he’s >> kicking it. I mean, he’s doing well healthwise, so >> he’s still active. So, he’s one that would have really benefited at this point. I think he’s gonna have no problem making it past the sweet spot,
00:08:57 – 00:09:45
you know, the break even point. Uh, and he he couldn’t touch that money anyway. It’s crazy. >> Yeah. And he didn’t get the checks. >> No. >> But now there’s going to be people that aren’t making the six figures that are claiming social security and and in this example, they’re making 30,000. So, they’re slightly over and they might be saying, “Well, all right. They’re going to withhold 2760 from me. That’s crap. That’s my money.” And the government’s
00:09:21 – 00:10:15
just going to take it. Well, no. Let’s get into first what counts as income because this also confuses a lot of people. In your case, your friend was working. >> That’s clear. He’s got W2 wages including bonuses and commissions. >> Yes, >> that counts as income. So, you can easily see how you that makes sense. All right. That’s earnings. But a lot of people say, “Well, I’m a 1099. I don’t pay into it. I don’t pay into social security, so I shouldn’t be
00:09:48 – 00:10:56
withheld.” No. Net self-employment profit after expenses counts as income as well. So, they’re looking at it if if you’re running a small business and you make profit, that profit counts as earnings. And if you’re claiming social security, you could find yourself above >> the limit. But what doesn’t count is pensions, annuity payments, investments, distributions from your IRA, in interest, capital gains, government benefits if you get a VA pension. Here’s the deal. People think, “Oh my
00:10:22 – 00:11:20
goodness, I want to retire at 62. I want to claim social security, but I need money to live. That’s not enough. So, I’m going to pull from my IRA now. I’m above the limit because my income is high.” No, they’re worried about earned income, people working, not taking out from retirement income or taking a pension. Okay, so people get that confused. This alleviates a lot of people’s concern. But that gray area of 1099 income, I put it on here specifically. If you’re going to have
00:10:51 – 00:11:47
net employment in um earnings, if you’re a contractor, say, >> it does count. It accounts after you take your expenses. But if you have pure passive income from 1099, dividends, interest, capital gains, a lot of people have rental properties. If you just have dividend uh rental income coming and you’re not really managing it, if you’re actively engaged in running a management company, yeah, that’s income. But if you just have a rental property and you’re just not really doing anything with it,
00:11:20 – 00:12:19
you’re just getting that income, that’s not considered the income that counts toward this earnings limit. Doesn’t count. >> So that’s important. But now let’s go back to the fact that people do take it early because they have a reason to, right? We we’ve gone through countless reasons why you you should take it early for some people and let’s say they do go over the limit. But what about someone that retires mid year, >> right? Or you know they’re going to take
00:11:49 – 00:12:52
it at 62 and and their birthday is in July. Okay, what about that? I earned a big paycheck in the beginning of the year and now I’m retired. Why should my income I didn’t I didn’t take social security and earn. I stopped working. But you’re saying my annual income I made 100,000 in the first six months of the year that now I’m going to not see my any paycheck this year when I’m retired. No, they make an exception. In this case, they look at your monthly income. >> So, it’s say roughly 2,000 a month. If
00:12:20 – 00:13:13
you stop working or work part-time and you made a big chunk of change in the beginning of the year, they look at going forward from when you when you retire, when you actually start claiming. They don’t look at that past. So, they give you a little bit of a leeway there. >> That’s That’s good. But Dan But Dan, if you’re Everybody’s like, “Fili at 62, file at 62. You’ll get more checks. You got to get what you can, but you’re locking in the lowest possible amount.
00:12:47 – 00:13:45
It’s like a 30% reduction. >> 30% at 62. Yeah. >> And if you’re not going to stop, if you’re not going to retire until 67 or 70, uh, you probably don’t want to do that, right? Is what you’re saying. >> Probably not. Probably not. But if you do, because you say, “I’m only going to work part-time and I’m going to work.” Here’s what happened. We just did our last show, Tony. >> Cuz you you don’t have to work very much to go over the the $24,000 limit,
00:13:15 – 00:14:02
>> right? No. 2,000 a month full-time job. Yeah. >> Especially if you’re retiring from a full-time job and going part-time, it’s you could still easily get above 24,000, right? >> If you stay below it, then none of this matters. >> But we’re talking about the people that do go above that. And here’s a prime example of someone that could, Tony. You and I just did a show last week about how people need to plan for what they’re going to do with their time, right?
00:13:40 – 00:14:25
Because they can go into that disenchantment phase. If you haven’t seen it, that’s the big thing that people don’t talk about. They don’t talk about it because they’re like, “Oh, retirement’s great. Financials they worry about.” But they don’t think about what they’re going to do and they get bored. Right. Right. >> What happens when people get bored? >> Yeah. >> They [snorts] don’t have a purpose. They wind up going back to work. >> And let’s like your friend, for example,
00:14:01 – 00:14:49
he takes it at 62 and now he’s 63 and a half. A year and a half’s gone by. Honeymoon phase is over. Disenchantment phase has been going on for seven months. He’s ready to be He wakes up in tears and he’s like, “I got to go back.” So, he goes back to work and he’s like, “Well, I’m not going to I’m not going to work for free. I’m going to be working, you know, 40 hours a week. I better get my 100,000, right?” All [snorts] of a sudden, Social Security is gone because
00:14:25 – 00:15:15
now he’s way over the limit. He um can’t undo it because he’s cla You have to It’s within the first year. So, you can’t stop claiming until you hit your full retirement age. So, he’s in this trap. He’s stuck, which is why he doesn’t want to talk to you about it because he’s stuck. Right. >> Right. Right. What happens to those benefits? Prime example, people get they get upset. They said, “The government’s taking it. I’m gone. All my money, I’m
00:14:50 – 00:15:47
never going to see it.” No, you do see it. They’re not permanently lost. That’s a misconception. >> And they [snorts] get restored automatically for you when you hit your full retirement age. So, all those checks that are withheld are going to come back to you when you finally hit 67 or your full retirement age. >> Right. >> Right. But it doesn’t come back as a lump sum. That’s, you know, that would be great, right? It would be like, “Hey, we withheld, you know, $20,000 a year
00:15:20 – 00:16:17
for the past three years from you. Here’s a check for $60,000. That’s a nice little chunk, right?” Uh, no. And it’s not spread against your lifetime. It’s not like they look at the actuary tables and say, “Here’s your new life expectancy. We’re going to give it to you a little bit.” No. It’s it’s done very differently. And people have no idea how this works. So hopefully they’ll figure this out now. So So now going back to your example, Tony, you’ve retired early, you claim social
00:15:48 – 00:16:48
security early, but then you’re working and you’ve been getting checks withheld from you and you’re like, where’s that money going? You might have a little journal. They didn’t give me my checks. These I missed 12 checks in the past three years. I want my money, right? So how does it come how does it come back to you? When you hit your full retirement age, Social Security is going to recalculate your monthly benefit. They do it all every year. And your monthly benefit, remember, is your top
00:16:17 – 00:17:28
35 years history >> in a formula that they use based on your earnings, right? >> Based on your age. So they recalculate it and say, “Okay, cuz you could be working and increasing your social security as well because you’re raising those 35 years. You may have some zeros you’re replacing from age 62 to 67, right? So you want the recalculation.” What they do is they say, “Okay, Tony, you took your benefit at 62. You’re getting a 25% decrease for life.” And you’re like, “I
00:16:54 – 00:17:53
know, cuz that’s what I’m going to do.” Right? talk to Dan and this is the plan. You go back to work and it turns out you make too much money and the government withheld 12 checks from you. A year’s worth of checks that you never saw, you know, three times three checks a year were withheld to you for four years and you’re like, I want that money back. What the government does is say, okay, you’re 67, Tony. Let’s look at it. Let’s recalculate it. According to our record,
00:17:22 – 00:18:29
you took it at 62, so you get a 25% reduction, but we also withheld 12 months of checks from you. So, we’re going to recalculate it. And instead of saying you took it at 62, we’re going to say you took it at 63 because you didn’t get those one year of checks. So now they’re going to recalculate your benefit based on your primary insurance amount, your full retirement age benefit, and say you’re only getting 20% haircut now because you claimed a year later than you actually did. So they recalculate it. Now you’re
00:17:56 – 00:18:56
getting 20% reduction instead of 25 for the rest of your life. So they give you a brand new check starting from that point. It’s higher for the rest of your life. And that’s how you get your >> It’s still a reduced amount, but it is higher than Yeah, >> exactly. It’s a lesser reduced amount because they’re adding back all those years of that you didn’t get payments as if you didn’t claim. They’re adding it to your start date. >> Yeah, >> if that makes sense. So, as an example,
00:18:26 – 00:19:23
you claimed at 62 and you were getting 910 a month. you had a year’s worth of of benefits withheld because you were making above the earnings limit. When you hit your full retirement age, they recalculate it and say, “Instead of withholding 25, we’re going to we’re going to we’re going to uh 25% haircut, we’re giving you 20% haircut.” 25 to goes to 20. Now, your benefit goes to 975. >> Yeah. >> And that 975 continues for the rest of your life. This doesn’t include cost of
00:18:54 – 00:19:47
living and all that jazz. So, it’s just dollar for dollar. That’s how that works. >> Yeah. >> Yeah. So, you do get it back. It’s not all lost. The government’s not totally evil, >> right? >> Can you imagine, though? Can you imagine they just didn’t give it to you and never gave it back? >> But it didn’t really But it didn’t really help you because you’re I mean, it’s the same as if Yeah. I mean, you just went through the process of filing
00:19:20 – 00:20:24
at 62 for no reason then. >> Right. And and so in your friend’s case, his check at 67, assuming he didn’t see any of his checks, was what he would have gotten at 67 anyway. >> Yeah. >> Except he went through the rigor of filing at 62. And >> Yeah. So he kind of >> he didn’t stop working until he was 70, >> right? But his check started at 67. >> Yeah. >> And he could right at that at that point at 67, he could have suspended his benefits and waited till 70. Yeah.
00:19:53 – 00:21:01
>> So, he could have made that decision then, but he probably was like, “No, Marty.” Right. >> No, he didn’t. Yeah, he didn’t. >> So, just as a recap, the limits in 2026, 24,480 and then the year you turn your full retirement rates, it goes up to 65,160. It only counts earned income, not the passive withdrawals from your IRA. The 1099 is the gray area, but it does count if it’s active, not passive. And then once you hit your full retirement age, you get all the benefits back that were
00:20:26 – 00:21:33
withheld if you happen to go above the earnings limit. >> Yeah. >> That earnings limit though is low and it hasn’t been changed for a long time. >> It is low. It is low and inflation has made it Yeah. I don’t know in inflation has really eaten up a lot of people. So, I’m not sure >> if the government’s going to ever change that, but in if if you think about from the government’s perspective, they don’t want people retiring early, >> you know, they because that’s less
00:21:00 – 00:21:51
money. That’s more money coming out. They’d rather people continue to work to keep the system sustainable. >> Um, so why would they raise that earnings limit? I don’t know. >> Yeah, they’re not going to, but it’s not adjusted for inflation. >> No. No. Um, but it could be, you know, you work part-time, make 20,000, and you get 20,000 social security. So, you kind of blend those two together, and it’s the same. But again, though, Tony, you’re you’re locking in that low
00:21:26 – 00:22:14
number. >> Yes. >> It’s a big decision, >> which isn’t the right isn’t right for everyone. It’s not >> when people when people come to me and they ask me when should I do it? Should I claim? One of the questions I ask is, are you married? That’s not were you ever married? Also, are you continuing to work and how much you earning? >> Yeah. And it’s not because I’m interested in just making life difficult for you. I want to figure out the earnings and put it in my software. So
00:21:50 – 00:22:44
when I run a social security maximization report, it’ll include earnings limit tests. So it’ll show you whether or not claiming early makes sense based on your income as well. And by the way, it’s just your income, not your spouse’s income, right? So your spouse can still be making millions and you can get all your social security check. It’s your own income because it’s your own benefit. But when you file can affect your spouse later on if you pass. >> Absolutely. Absolutely it can. The
00:22:16 – 00:23:06
survivor benefit is locked in based on when you claim. And so and we’ve done countless shows on that. If you’re interested in the Social Security Maximization Report, I put the QR code at the top above Tony’s head. Just click on that and let me know and we’ll create the Social Security Maximization Report for you. We don’t charge for that. But again, Tony, that I just want hoping people realize this is a real thing. the earnings limit. It’s not as scary as it needs to be. It is complex because, as
00:22:42 – 00:23:41
we know, the government likes to make things complex. >> Of course, they do, >> you know, but whatever. It is what it is. So, until we get the old Australian uh pension system in play, which we did a show on. >> Yeah. >> We’re going to be dealing with this type of nonsense for the foreseeable future. And uh well, actually, what 2032 we’re done? We’re done with this. So, we’ll see. >> Supposedly. Yeah. Yeah, we’ll see. Again, thanks for a good show, Tony.
00:23:10 – 00:23:14
We’ll catch everyone next week.