Dear Liz: I am under full retirement age, collecting Social Security and working part-time. I just received a letter from Social Security telling me I earned over the $22,320 limit and now have to pay back some of my Social Security. I was aware of the limit, so the letter was not unexpected. What I’m curious about though is what is the rationale behind the earnings limit? Once you’re eligible for Social Security, why do they care how much you earn? Are they trying to discourage applying before full retirement age? Also, and more importantly, I think I read that somewhere down the line, I will get back what I had to pay back. Can you clarify that for me?
Answer: Social Security was designed as insurance for those who could no longer work, and a retirement earnings test has been a part of the system from its creation in 1935. Back then, the test was all-or-nothing: Any earned income would preclude your getting a benefit.
Over time, the test was modified so that people could earn some income without losing all their benefits. The age at which the earnings test no longer applies has changed as well. In the 1950s, it was set at 75. In the 1960s, the age was lowered to 65. In the 1980s, it was adjusted so that the current “full retirement age,” when the test no longer applies, is 67.
The current test withholds $1 for every $2 earned over a certain limit, which in 2025 is $23,400. Once you reach full retirement age, the withheld amounts will be added back into your benefit.
What you won’t get back, however, is the larger benefit you could have earned by delaying your initial application. Most people are better off waiting at least until full retirement age to collect Social Security, if they possibly can.
Leave a Reply