Working in retirement while collecting Social Security checks sounds like a straightforward way to stretch a fixed income. For many retirees, the math does not work out that way.
A little-known Social Security rule called the earnings test can reduce or eliminate benefit payments for people who claim Social Security before reaching their full retirement age and continue to earn income from a job. The rule catches many retirees off guard, according to a report by Yahoo Finance.
The mechanics are specific. In 2026, workers who are under their full retirement age for the entire year lose $1 from their annual benefits for every $2 they earn above $24,480. Full retirement age is 67 for anyone born in 1960 or later. Workers who reach their full retirement age during 2026 face a higher threshold: they can earn up to $65,160 before any withholding applies. Beyond that amount, they lose $1 for every $3 earned, but only until they reach their birth month.
Once a worker hits full retirement age, the earnings test no longer applies. The Social Security Administration also provides a benefit boost after that point to compensate for amounts withheld in earlier years.
The impact depends heavily on individual circumstances. Workers earning modest incomes from part-time work may never hit the threshold. Those relying on Social Security to cover a large share of monthly expenses face a more serious problem if their job income pushes them over the limit.
Financial planners recommend that anyone considering this combination of work and benefits run the numbers before making a decision. Estimating how much the earnings test would withhold each year allows retirees to plan whether reduced spending, withdrawals from savings, or other income sources could cover the gap.
The earnings test limits are not fixed. They adjust annually, which means anyone planning around the rule for 2027 should check the updated figures before the start of that year. Failing to account for the change could result in an unexpected shortfall.
The broader situation many retirees face involves a mismatch between what they expected homeownership or retirement income to cost and what they actually encounter. The earnings test is one of several rules that can upend carefully built financial plans, particularly for people who retire earlier than their full retirement age and find that staying in the workforce part-time does not provide the income cushion they anticipated.
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