How Much Can You Make Drawing Social Security?

Social Security benefits often serve as a financial foundation for many individuals during retirement. Many beneficiaries choose to continue working, either out of enjoyment or financial necessity, which naturally raises questions about how earned income might affect their Social Security payments. This article will clarify the rules governing how much you can earn while collecting Social Security and the impact those earnings have on your benefits.

Understanding Earnings Limits and Benefit Reductions

The Social Security Administration (SSA) imposes earnings limits for beneficiaries who are below their full retirement age (FRA) and continue to work. Full retirement age varies depending on your birth year, typically ranging from 66 to 67. If you claim benefits before reaching your FRA and earn above a specific amount, your benefits may be reduced.

For individuals who are under their full retirement age for the entire year, the annual earnings limit for 2025 is $23,400. If your earnings exceed this amount, the SSA will deduct $1 from your benefits for every $2 you earn above the limit. For example, if you earn $25,400, which is $2,000 over the limit, your benefits would be reduced by $1,000.

A different earnings limit applies in the year you reach your full retirement age. For 2025, this limit is $62,160. In this specific year, the SSA deducts $1 in benefits for every $3 you earn above this higher limit. Only earnings accumulated in the months before you reach your full retirement age are counted towards this limit.

Once you reach your full retirement age, the earnings limit no longer applies.

Defining Countable Earnings

When the Social Security Administration assesses your income against the earnings limits, “countable earnings” specifically refer to wages from employment and net earnings from self-employment. This includes your gross wages, which is the amount before taxes or other deductions are subtracted. Bonuses, commissions, and even vacation pay are also considered countable earnings.

Conversely, many other types of income are not counted towards the earnings limit. For instance, pension payments, annuities, and distributions from retirement accounts like IRAs do not affect your Social Security benefits. Investment income, such as interest, dividends, or capital gains from the sale of assets, is also excluded from the earnings test.

Other forms of income that are not counted include government retirement benefits, like military retirement pay, and veterans’ benefits. The key distinction is whether the income is earned from active work or from passive sources and previously earned compensation.

Reporting Your Earnings to Social Security

Accurate and timely reporting of your earnings to the Social Security Administration (SSA) is important when you are receiving benefits and working. This helps the SSA correctly apply the earnings test and prevent overpayments or underpayments. You should report changes in your work activity, such as starting or stopping a job, or significant changes in your earnings.

The SSA offers several methods for reporting your earnings. Many beneficiaries find it convenient to report online through their personal “my Social Security” account. This secure portal allows you to submit wage information electronically. Alternatively, you can report earnings by phone, mail, or by visiting a local Social Security office in person.

It is advisable to report your wages as soon as you receive your last paycheck for the month, ideally by the sixth day of the following month, to ensure accurate processing. If you are self-employed, you will need to report your net earnings from self-employment.

Future Benefit Adjustments

When your Social Security benefits are reduced due to exceeding the earnings limits, those withheld benefits are not permanently lost. Instead, the Social Security Administration has a process to account for these reductions. This process is known as an “adjustment of the reduction factor” or “recomputation.”

The SSA automatically reviews your earnings record each year after receiving your income information from tax documents. If benefits were withheld because you earned above the limit, the SSA will recompute your monthly benefit amount once you reach your full retirement age. This recomputation gives you credit for the months in which benefits were withheld. Essentially, the months you did not receive benefits due to the earnings test are added back into your benefit calculation, increasing your future payments.

This adjustment results in a higher monthly benefit payment for the remainder of your life.