If you collect Social Security before reaching full retirement age and continue working, your monthly benefit may be reduced if your earnings are above certain limits. That rule is known as the Social Security Retirement Earnings Test. It has been criticized for years because many retirees see it as a penalty for working.
Now, proposed legislation called the Senior Citizens’ Freedom to Work Act aims to repeal the rule and allow older Americans to keep working without having their Social Security benefits temporarily reduced. Whether the bill will pass remains uncertain, but it raises an important planning question for anyone thinking about claiming Social Security while still earning income.
What Is the Retirement Earnings Test?
The retirement earnings test applies to people who claim Social Security benefits before full retirement age and continue to work.
For 2026, individuals who are under full retirement age for the entire year can earn up to $24,480 before the earnings test applies. If earnings go above that amount, Social Security withholds $1 in benefits for every $2 earned above the limit.
There is a different limit for people who reach full retirement age during the year. In 2026, that amount is $65,160, and Social Security withholds $1 for every $3 earned above the limit until the month full retirement age is reached.
Once you reach full retirement age, the earnings test no longer applies. At that point, you can work and earn income without having your Social Security benefits reduced because of wages.
What Could Change?
The proposed Senior Citizens’ Freedom to Work Act would repeal the retirement earnings test.
The goal is to remove what many see as a work penalty for people who claimed Social Security early but still want or need to remain employed. Supporters argue that the current rule discourages work, creates confusion, and may cause some retirees to limit their hours or leave the workforce earlier than they otherwise would.
However, the bill has not yet become law. Until that happens, the current earnings test rules still apply.
Why This Rule Confuses People
One reason the earnings test is often misunderstood is that reduced benefits are not necessarily “lost” forever.
When a person reaches full retirement age, Social Security recalculates their benefit to account for months when payments were reduced or withheld. In many cases, that can increase the monthly benefit going forward.
The challenge is that many people do not fully understand this adjustment. So they may assume working will permanently cost them benefits and make decisions based on incomplete information.
That matters because the decision to work, retire, or claim Social Security early is not just about one rule. It also affects cash flow, taxes, retirement income, and long-term planning.
Why It Still Matters for Retirement Planning
Even if benefits are adjusted later, the temporary reduction can still create problems.
Some retirees claim Social Security early because they need the income now. If their monthly payments are reduced while they are still working, that can create short-term cash flow pressure.
Others may have health concerns or shorter life expectancies, which can make the timing of withheld and later-adjusted benefits more complicated.
There is also the tax side to consider. Earning income while collecting Social Security may affect how much of your Social Security benefit is taxable, depending on your overall income.
What Should You Do Now?
Until the law changes, the retirement earnings test is still something to plan around.
If you are thinking about working while collecting Social Security before full retirement age, consider these questions:
- How much do you expect to earn this year?
- Have you reached full retirement age?
- Would your benefits be temporarily reduced?
- Do you need Social Security income right now, or can you delay claiming?
- Could additional work income affect the taxation of your Social Security benefits?
- How does this decision fit into your broader retirement income plan?
The Social Security Administration also provides an online calculator that can help estimate how the earnings test may affect your benefits.
Click here to view the Social Security retirement earnings test calculator.
The Bottom Line
The proposed repeal of the Social Security Retirement Earnings Test could be good news for people who want to keep working while collecting benefits early.
But for now, the current rules still apply.
Before claiming Social Security, continuing to work, or reducing your hours, it is worth understanding how the earnings test may affect your income today and how your benefits may be adjusted later.
Want help thinking through when to claim Social Security and how it fits with your retirement income plan? Click here to contact our office or ask about an upcoming educational event.
