Imagine this: You're collecting Social Security, but you're still working and earning more than the allowed limit. Can you simply hit pause on those payments? It's a question that leaves many scratching their heads, especially when they hear about the dreaded 'earnings test.' But here's where it gets interesting: the rules aren't as straightforward as they seem.
Let's break it down. If you start receiving Social Security benefits before reaching your full retirement age, you'll encounter the earnings test. This rule reduces your benefits by $1 for every $2 you earn above a certain threshold—in 2026, that threshold is $24,480. Sounds harsh, right? But there's a silver lining. Once you hit your full retirement age, you can suspend your Social Security payments entirely. At that point, the earnings test no longer applies, giving you more flexibility to work without penalties.
Now, you might be wondering: What happens to the money withheld due to the earnings test? Is it gone forever? Not exactly. The Social Security Administration doesn’t keep it—they gradually add those withheld amounts back into your benefits over time. However, what you do lose is the potential increase in your benefit that comes from delaying your application until full retirement age. And this is the part most people miss: even if you’ve started early, you still have a chance to boost your benefits.
Here’s how: If you suspend your benefits at full retirement age, you can earn delayed retirement credits. These credits increase your monthly check by 8% for each year you delay, up to age 70. For most people, that 24% boost, combined with cost-of-living adjustments, makes the wait well worth it. But here's the controversial part: Is it better to start early and deal with the earnings test, or wait and maximize your benefits? It depends on your financial situation, health, and retirement goals. What’s your take? Do you think the earnings test is fair, or does it penalize those who want to keep working? Share your thoughts in the comments—let’s spark a conversation!
For more insights, check out Liz Weston’s other columns, like What are share, or deposit secured loans, and who offers them? or Can I set up a 529 account for a grandchild who lives abroad? Liz, a Certified Financial Planner and personal finance columnist for NerdWallet, offers practical advice to help you navigate these complex topics. Questions? Reach out to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the ‘Contact’ form at asklizweston.com.
