Retirement Social Security

Millions of Retirees Don't Know About This Social Security Rule That Can Slash Their Benefits

Social Security recipients may choose to work, but it's important to understand the implications.

By Maurie Backman , Edited by Laura Hohenstein

Updated Oct. 14, 2026

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Many older Americans today are living on just Social Security. And for people in that situation, money may be very tight.

The average monthly Social Security benefit today is about $2,088, which amounts to about $25,000 per year. But even with a frugal lifestyle, you might struggle to cover your costs in full if Social Security is your only income stream. And it doesn't have to be, since Social Security recipients are also allowed to work while collecting benefits.

But it's important to know what might happen to your benefits if you work while you're on Social Security so your finances don't get thrown for a major loop.

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How Social Security's earnings test works

You're allowed to have a job while collecting Social Security. And even if you don't need the money, working could be a great way to stay busy and keep your mind sharp. It could also be a source of social connection.

Many people don't realize how crucial work is to their social lives until they stop reporting to an office. So working part-time could help some retirees avoid isolation.

If you work before reaching full retirement age (FRA), you'll be subject to Social Security's earnings test. The amount of income you can earn under it changes yearly.

In 2026, you'll have $1 in Social Security withheld per $2 of earnings beyond $24,480 if you won't reach FRA by December 31. If you haven't reached FRA yet but will by the end of the year, you'll have $1 in Social Security withheld per $3 of earnings beyond $65,160.

It's only earned wages that count toward Social Security's earnings test. Passive income like dividends, interest from bonds or CDs, or retirement plan withdrawals don't count.

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What happens to withheld benefits

If you end up having benefits withheld under Social Security's earnings test, the money isn't lost forever. Once you reach FRA, you should have those withheld payments returned to you in the form of larger monthly checks.

However, do remember that claiming Social Security ahead of FRA results in reduced benefits. This has nothing to do with the earnings test.

If you reduce your monthly checks by filing early, your benefits won't get a boost at FRA. It's only withheld benefits from the earnings test that get refunded, so to speak.

Why you can't afford to be in the dark

Even though your Social Security benefits are returned eventually under the earnings test, in the near term, having that money taken out of your monthly checks could cause cash flow problems. So it's important to understand how the earnings test rules work.

Let's say you expect $2,000 a month in Social Security, or $24,000 per year, but you need a total of $60,000 a year to pay your bills. You may decide to work and earn the remaining $36,000.

But if you won't reach FRA by the end of the year, you'll exceed the earnings test limit. You'll have $1 in Social Security withheld per $2 of your last $11,520 earned, since that sum exceeds $24,480. That could mess up your monthly budget.

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Why the earnings test might one day disappear

Social Security's earnings test has been around for a long time, but some lawmakers don't like it. They say it discourages workforce participation, which only hurts seniors who need money and Social Security itself.

Social Security gets funding from payroll taxes. So having more seniors working is a good thing for the program, since that boosts revenue.

To that end, lawmakers have introduced the Senior Citizens' Freedom to Work Act of 2026. It seeks to repeal the earnings test and allow Social Security recipients to earn money from working without worry.

Bottom line

Working during retirement could help eliminate some stress of living on Social Security. If you're able to supplement your benefits with earnings from a job, it might make it easier to pay your bills or have extra cash for leisure and entertainment.

It's important to understand how the Social Security earnings test works so that your budget isn't thrown off course in the event that you end up having benefits withheld. It's also important to realize that withheld benefits actually aren't lost forever, and that the money is returned to you eventually.

If the Senior Citizens' Freedom to Work Act is passed, the earnings test could become a thing of the past. And that could be a very positive development for seniors on Social Security.

For now, be mindful of the earnings test limits, and stay tuned for the 2027 limits, which the Social Security Administration generally announces in October. That way, you can see how much leeway you have to earn wages from a job in the new year before running into issues.

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