How Much Can I Earn If I Retire at 63?

Understanding the financial implications of working while receiving retirement benefits is important for early retirees. Earning income after retiring at age 63 can affect Social Security benefits, tax obligations, and Medicare costs, requiring careful consideration.

Social Security Earnings Limits

When an individual begins receiving Social Security benefits before reaching their full retirement age, their earned income can impact the amount of benefits they receive. An annual earnings limit applies for those under full retirement age. In 2025, this limit is $23,400. If earnings exceed this amount, Social Security will deduct $1 from benefits for every $2 earned over the limit.

A different earnings limit applies in the year an individual reaches their full retirement age. For 2025, this higher limit is $62,160. Social Security will deduct $1 in benefits for every $3 earned over this limit, but only earnings accumulated before the month of reaching full retirement age count towards this calculation.

Once an individual reaches their full retirement age, the Social Security earnings limit no longer applies. Social Security will recalculate and increase monthly benefits later to account for any benefits withheld due to exceeding earnings limits in prior years. For example, if someone under full retirement age in 2025 earns $30,000, which is $6,600 over the $23,400 limit, their Social Security benefits would be reduced by $3,300.

Taxation of Earned Income and Social Security Benefits

Earning income in retirement can also lead to a portion of Social Security benefits becoming subject to federal income tax. The Internal Revenue Service (IRS) uses “provisional income” to determine taxability. Provisional income is the sum of a taxpayer’s adjusted gross income (AGI), any tax-exempt interest, and one-half of their Social Security benefits.

The amount of Social Security benefits subject to tax depends on provisional income and filing status. For single filers, if provisional income is between $25,000 and $34,000, up to 50% of benefits may be taxable. If it exceeds $34,000, up to 85% may be taxable. Married couples filing jointly have different thresholds: between $32,000 and $44,000, up to 50% of benefits may be taxable, and over $44,000, up to 85% may be taxable.

Earned income, such as wages or self-employment earnings, directly contributes to AGI, increasing provisional income. This can push an individual over tax thresholds, making a portion of their Social Security benefits taxable, in addition to the earned income itself. These provisional income thresholds have not been adjusted for inflation, meaning more retirees may find their benefits taxable over time. Some states also impose income tax on Social Security benefits.

Medicare Premium Adjustments Based on Income

Higher income in retirement can also affect Medicare costs through the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA is an additional surcharge added to monthly Medicare Part B and Part D premiums for individuals with incomes above certain thresholds. This adjustment is based on a beneficiary’s Modified Adjusted Gross Income (MAGI).

For IRMAA purposes, MAGI includes adjusted gross income plus tax-exempt interest. The income used to determine IRMAA for a given year is from two years prior. For example, 2025 Medicare premiums are based on income reported on the 2023 tax return. This two-year look-back period means a sudden income increase may not immediately impact Medicare premiums, but could lead to higher premiums two years later.

For 2025, Medicare beneficiaries whose 2023 MAGI exceeded $106,000 for individual filers or $212,000 for those filing jointly will pay higher Part B and Part D premiums. Multiple income tiers exist, with premiums increasing incrementally at each higher bracket. The standard Part B premium for 2025 is $185 per month, but higher income individuals pay a surcharge. Beneficiaries receive a notice from the Social Security Administration if subject to IRMAA. An individual may appeal an IRMAA determination if income significantly decreased due to certain life-changing events.

Distinguishing Earned and Unearned Income

Understanding the difference between earned and unearned income is important when evaluating how working impacts retirement finances. For Social Security purposes, “earned income” specifically refers to wages from employment or net earnings from self-employment. This type of income is the only one considered when applying the Social Security earnings test. Therefore, if an individual is under full retirement age and receiving Social Security benefits, only their wages or self-employment income can lead to a reduction in those benefits.

In contrast, “unearned income” includes various other sources of funds that do not come from current work. This category encompasses pensions, annuities, investment income such as interest, dividends, and capital gains, and most rental income unless it is derived from an active business. These types of unearned income do not count towards the Social Security earnings limit, meaning they will not cause a reduction in Social Security benefits, regardless of the amount.

While unearned income does not affect the Social Security earnings test, both earned and unearned income contribute to a person’s overall income for other financial considerations. For instance, both types of income are generally included in the Modified Adjusted Gross Income (MAGI) calculation used to determine Medicare IRMAA surcharges. Similarly, both earned and unearned income contribute to the provisional income calculation that determines the taxability of Social Security benefits.