How Much Can You Earn at Full Retirement Age?
Understand how income affects Social Security benefits at full retirement age, including earnings limits, taxation, and adjustments over time.
Reaching full retirement age (FRA) is a key milestone for Social Security benefits, but many retirees continue working or earning income from various sources. Understanding how much you can earn without affecting your benefits is essential for financial planning.
Earnings impact both Social Security payments and potential tax obligations. Knowing the rules helps retirees make informed decisions about work and other income sources.
FRA and the Annual Earnings Threshold
Once you reach FRA, the Social Security Administration (SSA) no longer reduces benefits based on earned income. Before FRA, an earnings limit applies, which can temporarily reduce monthly payments if income exceeds a set threshold.
For 2024, individuals who have not yet reached FRA face an annual earnings limit of $22,320. Earnings above this amount result in a $1 reduction in benefits for every $2 earned. In the year an individual reaches FRA, a higher limit of $59,520 applies, with a $1 reduction for every $3 earned above the threshold. This reduction applies only to earnings before the month FRA is reached. After that, benefits are paid in full regardless of income.
Only earned income—such as wages and self-employment earnings—counts toward these limits. Passive income, including investments, rental income, and pensions, does not affect benefits. This distinction is key for retirees who work part-time or run a business while receiving other income.
When the Earnings Test Stops Applying
Once FRA is reached, Social Security benefits are no longer reduced due to employment income. The SSA also recalculates benefits to account for prior reductions, ensuring individuals receive the full amount moving forward.
Continued employment can still increase benefits. Social Security payments are based on a worker’s 35 highest-earning years. If post-FRA earnings exceed any lower-earning years in this calculation, the SSA adjusts benefits upward. This recalculation occurs annually.
For self-employed individuals, the SSA evaluates net business earnings. Unlike employees whose wages are reported via W-2 forms, self-employed workers must ensure accurate tax filings. Higher reported profits in later years may replace lower-earning periods, increasing monthly payments.
Taxation of Social Security with Extra Income
Social Security benefits may be taxable depending on total income, which includes wages, dividends, interest, and retirement withdrawals. The IRS determines taxability using “combined income,” calculated by adding half of Social Security benefits to adjusted gross income (AGI) and tax-exempt interest.
For individuals with combined income between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If combined income exceeds $34,000, up to 85% of benefits can be taxed. Married couples filing jointly face higher thresholds, with taxation beginning at $32,000 and reaching 85% at $44,000. These limits have remained unchanged for decades, meaning more retirees are affected as incomes rise.
State taxation varies. While most states do not tax Social Security benefits, 10 states, including Colorado, Minnesota, and Vermont, do. Each has its own rules, often incorporating income-based exemptions or deductions. Retirees should check local tax laws to understand potential obligations.
Calculating Income from Multiple Sources
Managing income from various streams requires careful coordination. Social Security benefits often form the foundation of retirement income, but many retirees also rely on tax-advantaged accounts like 401(k)s and IRAs, rental properties, annuities, and part-time work. Each source carries unique tax implications.
Tax-deferred accounts, such as traditional IRAs and 401(k)s, require minimum distributions (RMDs) starting at age 73 under the SECURE 2.0 Act. These withdrawals increase taxable income and may push retirees into higher tax brackets. In contrast, Roth IRAs provide tax-free withdrawals if certain conditions are met, offering a way to manage taxable income. Timing withdrawals strategically can help control overall tax liability.
For taxable investment accounts, capital gains and dividend income introduce additional tax considerations. Long-term capital gains are taxed at 0%, 15%, or 20%, depending on taxable income. Qualified dividends receive the same favorable treatment, while ordinary dividends and short-term gains are taxed at regular income rates. Managing gains and losses effectively can help minimize tax exposure.
Adjusting Benefit Payments Over Time
Social Security benefits change based on continued earnings, inflation adjustments, and SSA recalculations.
One of the most significant adjustments comes from the annual cost-of-living adjustment (COLA), designed to keep benefits in line with inflation. The SSA determines the COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In recent years, COLA increases have varied, with a 3.2% adjustment in 2024 following an unusually high 8.7% increase in 2023 due to inflationary pressures. These adjustments apply automatically to all beneficiaries.
For those working after claiming Social Security, benefit recalculations occur annually. If new earnings replace lower-earning years in the 35-year calculation, the SSA increases monthly payments. These adjustments typically take effect in January of the following year. Additionally, any benefits withheld due to the earnings test before FRA are gradually repaid through higher monthly payments once the test no longer applies.