Retirement is no longer a single, clearly defined event for everyone.

Some people leave full-time employment but continue consulting. Others return to work after discovering that they miss the structure, professional engagement, or additional income. Still others begin collecting Social Security while continuing to work because they assume reaching age 62 means they should claim their benefit.

You are allowed to work while collecting Social Security. However, the financial consequences depend heavily on your age, earnings, tax situation, and broader retirement strategy.

The rules are often misunderstood. More importantly, the decision should rarely be evaluated in isolation.

The First Question: Have You Reached Full Retirement Age?

The effect of working while collecting Social Security depends primarily on whether you have reached your full retirement age.

Full retirement age is generally between 66 and 67, depending on the year you were born. It is different from Medicare eligibility at age 65 and from the earliest Social Security claiming age of 62.

Once you reach full retirement age, you can earn any amount from employment without having your Social Security benefits withheld under the earnings test.

Before full retirement age, a portion of your benefits may be withheld if your earnings exceed certain limits.

How the Social Security Earnings Test Works in 2026

If you are under full retirement age for all of 2026, you can earn up to $24,480 before the earnings test applies. Above that amount, Social Security generally withholds $1 of benefits for every $2 of earnings over the limit.

A different rule applies during the calendar year in which you reach full retirement age. In 2026, you can earn up to $65,160 during the months before reaching full retirement age. Social Security generally withholds $1 for every $3 earned above that limit.

Beginning with the month you reach full retirement age, the earnings test no longer applies, regardless of how much you earn. Social Security Administration

Consider someone who is under full retirement age for all of 2026 and earns $50,000 from employment.

Their earnings would exceed the $24,480 limit by $25,520. Social Security could therefore withhold $12,760 of benefits—$1 for every $2 earned above the limit.

Depending on the person’s monthly benefit, that could result in several months—or potentially an entire year—of payments being withheld.

This does not necessarily mean the person should avoid working. It does mean that claiming Social Security while continuing to earn a meaningful salary may provide considerably less immediate income than expected.

Not Every Type of Income Counts as Earnings

The Social Security earnings test generally applies to wages from employment and net earnings from self-employment.

It may also include bonuses, commissions, and vacation pay. However, it does not generally count:

• Pension income
• Annuity payments
• IRA or 401(k) withdrawals
• Interest
• Dividends
• Capital gains
• Veterans benefits
• Other government or military retirement benefits

This distinction is important. A retiree may have significant total income without being subject to the earnings test if that income does not come from current employment or self-employment. Social Security Administration

The tax consequences of that income are a separate issue.

Withheld Benefits Are Not Necessarily Lost Forever

One of the most common misconceptions is that benefits withheld under the earnings test simply disappear.

When you reach full retirement age, Social Security recalculates your monthly benefit to account for months in which benefits were withheld because of excess earnings. The adjustment is designed to give you credit for those months going forward.

In that sense, the earnings test is closer to a deferral of benefits than a permanent forfeiture.

However, that does not make the timing irrelevant. You may still lose access to income during the years when you planned to use it. The eventual value of the recalculated benefit will also depend on how long you live.

A higher future benefit does not automatically solve a short-term cash-flow problem. That is why the decision should be modeled as part of a retirement-income plan rather than reduced to the statement that “you eventually get the money back.”

Continuing to Work May Increase Your Benefit

Social Security calculates retirement benefits using your highest 35 years of earnings.

If your current earnings replace a lower-earning year—or a year with no earnings—in your calculation, continuing to work may increase your future benefit.

Social Security reviews the earnings records of beneficiaries each year. When more recent earnings produce a higher benefit, it recalculates the payment and applies any increase that is due. Social Security Administration

For someone with 35 years of consistently high earnings, another year of work may make relatively little difference. For someone with fewer than 35 years of earnings or several lower-income years, the effect may be more meaningful.

Working Can Change the Tax Picture

Even after the earnings test no longer applies, working may affect how much of your Social Security benefit is subject to federal income tax.

To determine whether benefits may be taxable, the calculation generally considers one-half of your Social Security benefits plus your other income, including tax-exempt interest. Depending on the result and your filing status, up to 85% of your Social Security benefit may be included in taxable income. Internal Revenue Service

This does not mean Social Security is taxed at an 85% rate. It means that up to 85% of the benefit may be included as taxable income and taxed at your applicable federal income-tax rate.

Employment income can also affect:

• Your marginal tax bracket
• The taxation of investment income
• The amount available for Roth conversions
• Capital-gain planning
• Required minimum distribution strategies
• Eligibility for certain deductions or credits
• State income taxes

For higher-income households, evaluating Social Security without considering the tax return can create an incomplete picture.

Employment Income May Also Affect Medicare Premiums

If you are enrolled in Medicare, higher income may lead to income-related surcharges on Medicare Part B and Part D premiums, commonly referred to as IRMAA.

These surcharges are generally based on modified adjusted gross income from a prior tax return—typically from two years earlier. For example, 2026 Medicare income-related adjustments are generally based on 2024 tax information. Medicare

Returning to work or receiving a large bonus may therefore affect Medicare premiums in a later year.

This does not mean that earning additional income is financially disadvantageous. An individual would not ordinarily reject substantial compensation merely to avoid a higher Medicare premium. However, the delayed impact should be understood and incorporated into cash-flow and tax projections.

Claiming Early May Still Permanently Reduce Your Base Benefit

The earnings test and the early-claiming reduction are separate rules.

If you claim Social Security before full retirement age, your monthly benefit is generally reduced based on how early you begin. That early-filing reduction can continue even after the earnings test no longer applies.

Benefits withheld due to excess earnings may lead to a later adjustment, but that does not necessarily place you in the same position as someone who never claimed early.

Before filing, it is worth asking why you are claiming:

• Do you need the income?
• Are you concerned about longevity or health?
• Are you continuing to earn enough that most of the benefit will be withheld?
• Would delaying create a larger future income floor?
• How would the decision affect a spouse or potential survivor benefit?
• Are there tax-planning opportunities that should occur before Social Security begins?

There is no universally correct claiming age. But “I became eligible” is not, by itself, a complete claiming strategy.

What If You Already Claimed and Then Returned to Work?

Your options may depend on your age and how recently you claimed.

If it has been less than 12 months since your benefit entitlement began, you may be able to withdraw your Social Security application and reapply later. This generally requires repaying the benefits received by you and certain family members, along with amounts withheld for items such as Medicare premiums and taxes. A withdrawal is generally permitted only once. Social Security Administration

Once you have reached full retirement age, but before age 70, you may be able to voluntarily suspend your benefit. During the suspension, you can earn delayed retirement credits that increase future payments. Benefits restart when requested or automatically at age 70. Suspending can also affect benefits paid to certain family members on your record, so the household impact should be reviewed first. Social Security Administration

These choices can be useful, but they should be evaluated carefully before taking action.

The Bottom Line

Working while collecting Social Security is allowed, and for many people it can be entirely reasonable. The mistake is assuming that the decision has only one consequence.

Before full retirement age, the earnings test may temporarily reduce or eliminate benefit payments. At any age, additional income may affect taxes, Medicare premiums, investment decisions, and the overall retirement-income strategy. Continuing to work may also increase your future Social Security benefit if new earnings replace lower years in your record.

A sound decision requires more than knowing the annual earnings limit. It requires coordinating Social Security with employment income, taxes, investments, healthcare costs, longevity, and the needs of both spouses.

At Towerto Private Wealth, we help individuals and families evaluate these decisions as part of a comprehensive financial plan. If you are considering claiming Social Security while continuing to work—or returning to work after benefits have begun—we welcome the opportunity to help you understand how the pieces fit together.

TOP Private Wealth is an Investment Adviser registered with the U.S. Securities & Exchange Commission (SEC), principally located in the state of Connecticut. All views, expressions, and opinions included in this communication are subject to change.

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