Why Retirees Still Work: Boost Your Social Security

The “work in retirement” secret

Plenty of retirees keep working—to stay active, to cover rising costs, and (big one) to boost their Social Security. Done right, post-retirement earnings can replace low or zero years in your record and trigger an automatic increase in your monthly benefit—even if you already claimed. We’ll show you exactly how that happens in 2025, with plain-English rules, examples, and traps to avoid. (Social Security)

How working can raise your Social Security (the 35-year rule)

Social Security bases your benefit on your Average Indexed Monthly Earnings (AIME)—your highest 35 years of wage-indexed earnings. Add a new high-earning year and you may bump out a lower year (or a zero), lifting your AIME and your benefit. You don’t need to file anything special: SSA checks your record each year and recomputes automatically if the new year helps. (Social Security)

Rule of thumb: replacing a $0 year with $25,200 of covered wages adds roughly $60/month to your AIME average (because 35 years × 12 months = 420 months; $25,200 ÷ 420 ≈ $60). The exact benefit increase depends on the PIA formula (bend points), but the concept holds: better years in, higher check out. (Social Security)

Automatic recomputation (and how to speed it up)

• Automatic: Each year, after your latest W-2/self-employment earnings are posted, SSA recomputes and starts paying the higher amount for the earliest possible month—and sends you a letter. (Social Security)
• Want it faster? You can request a recomputation sooner (in writing) if you have proof of earnings that aren’t yet in the system. See CFR §404.286. (Social Security)

2025 earnings test: how much can you earn before FRA?

If you work while collecting before your Full Retirement Age (FRA), Social Security may withhold some payments under the Retirement Earnings Test (RET). That’s not a penalty; withheld months are credited back via a higher benefit at FRA. (Social Security)

2025 limits

• Under FRA all year: $23,400 annual limit; SSA withholds $1 for every $2 over. (Social Security)
• Reaching FRA in 2025: $62,160 for months before FRA; SSA withholds $1 for every $3 over. (Social Security)
• From the month you hit FRA: no earnings limit at all. (Social Security)

Only earned income counts. Wages and net self-employment are counted; pensions, annuities, IRAs/401(k) withdrawals, dividends, interest, capital gains, veterans’ benefits do not count under the earnings test. (Social Security)

The special first-year monthly rule (the “get paid even if you blew past the annual limit” rule)

Retiring mid-year and already over the annual limit? The monthly test can save the day in that first calendar year. In 2025 you’re considered “retired” in a month if:

• You’re under FRA all year and earn $1,950 or less in that month and don’t perform “substantial services” in self-employment.
• You reach FRA in 2025 and earn $5,180 or less in a month (and no substantial services).
  In those “retired” months, SSA can pay a full check despite high year-to-date earnings. (Social Security)

Self-employed? “Substantial services” generally means >45 hours in the month (or 15–45 hours if the work is highly skilled). (Social Security)

After FRA: work all you want—and still get increases

Once you reach FRA, the earnings test ends. Keep working as much as you like; new high-earning years can still replace lower years and lift your benefit through automatic recomputation. (Social Security)

Taxes & paychecks: what to watch

• Payroll taxes continue: You’ll still pay OASDI on wages up to the 2025 taxable maximum of $176,100 (6.2% employee rate; 12.4% if self-employed). (Social Security)
• Income taxes on benefits: Up to 85% of your Social Security may be taxable if your combined income exceeds $25,000 (single) or $32,000 (joint). Consider withholding 7%, 10%, 12%, or 22% with Form W-4V. (IRS, Social Security)

Quick scenarios (2025)

Step-by-step: Maximize your benefit while working

1. Know your FRA and the 2025 limits before you file or return to work. (Social Security)
2. Estimate your record in my Social Security and spot low years that new work could replace. (SSA uses the best 35.) (Social Security)
3. If you retire mid-year, ask SSA about the monthly rule to salvage full checks in “retired” months. (Social Security)
4. Already working after claim? Sit tight for the automatic recomputation; if you need it sooner, request it under CFR §404.286 with proof of earnings. (Social Security)
5. Plan taxes: check the IRS combined income thresholds and consider W-4V withholding to avoid surprises. (IRS, Social Security)

What doesn’t count toward the earnings test (common confusions)

• NOT counted: pensions, annuities, IRA/401(k) withdrawals, dividends, interest, capital gains, VA benefits. (Social Security)
• Counted: wages (including bonuses/commissions/vacation pay) and net self-employment. (Social Security)

Pros & Cons of working in retirement

Pros

• Can replace low years and raise your lifetime benefit. (Social Security)
• RET withholdings before FRA are credited back at FRA; not a true “penalty.” (Social Security)
• Extra income can cover inflation and delay portfolio withdrawals.

Cons

• Before FRA, earnings can withhold checks. (Social Security)
• Higher income can make more of your Social Security taxable. (IRS)
• Self-employed must watch the 45-hour threshold under the monthly rule. (Social Security)

Summary Takeaways

• Working in retirement can increase your Social Security by replacing low/zero years; SSA recomputes automatically and can pay the higher amount retroactively to the earliest eligible month. (Social Security)
• In 2025, the earnings limits are $23,400 (under FRA all year) and $62,160 (year you reach FRA). After FRA, no limit. Withheld benefits are not lost. (Social Security)
• First-year retirees can use the monthly rule ($1,950 or $5,180 monthly test) to receive full checks for “retired” months. (Social Security)
• Pensions/IRAs/investments don’t count under the earnings test; only earned income does. (Social Security)

FAQs

1) Will working after I claim actually increase my Social Security?
Often, yes. If your new earnings replace lower years in your highest 35, SSA automatically recalculates and raises your benefit. (Social Security)

2) What are the 2025 earnings limits—and do I “lose” that money?
Under FRA all year: $23,400 with $1 withheld for each $2 over. Reaching FRA in 2025: $62,160 with $1 for each $3 over (pre-FRA months only). Withheld checks are credited back at FRA. (Social Security)

3) Do investments, pensions, or IRA withdrawals count toward the earnings test?
No. Only wages and net self-employment count; pensions, annuities, dividends, interest, and capital gains don’t. (Social Security)

4) I retired mid-year and already exceeded the annual limit. Can I still get checks?
Yes—via the special first-year monthly rule. In 2025 you can receive full checks for months you earn ≤$1,950 (or ≤$5,180 if it’s your FRA year) and don’t do “substantial” self-employment. (Social Security)

5) How fast will SSA raise my check after new earnings?
SSA recomputes after your latest earnings post. If you want it sooner, you can request a recomputation in writing under CFR §404.286 with proof of earnings. (Social Security)

6) Can I earn unlimited income after FRA?
Yes. No earnings limit applies from the month you reach FRA, though regular income-tax rules still apply. (Social Security)

7) Do I still pay Social Security taxes when I work in retirement?
Yes—on wages up to $176,100 in 2025 (or on net earnings if self-employed). Those earnings can help your benefit if they make your top 35. (Social Security)

Sources:

• SSA: Working while getting benefits; earnings test examples; special first-year monthly rule; recomputation (automatic) and request; AIME/35-year method; 2025 COLA facts; taxable maximum. (Social Security)
• SSA (what counts): Earnings vs non-earnings for RET; self-employment “substantial services” threshold. (Social Security)
• IRS: Social Security benefit taxation thresholds (combined income). (IRS)