NEW 2025 Rules For Working And Receiving Social Security

Sometimes people make the decision to take Social Security benefits while they're still working. And for some, there's no problem. But for others, that could be a major problem. In this video, I'll explain why. Now I'm going to get into the precise details about making this decision if you have Social Security while you're still working. But before we do that, you have to know for sure when your full retirement age is, the exact month and year. So let's go through just real quickly and I'll give you a couple examples here. Anyone born, as you can see, between the years of 1943-1954 had a full retirement age of 66. So now the majority of people that are born here, they've already taken Social Security, even if they wait to age 70, they have started that now. But what the government did after birthdays of 1954 begin in 1955, they started adding two months to everyone's full retirement age. So if we're born in 1955, it was 66 plus two months. 1956, they added four months, 1957. As you can see, they added six months, 58, they added eight months, 1959, 10 months. And then once we get 1960 birthdates on, moving forward, now we have a full retirement age of 67. Now, some of you could be watching this and you're going to be born in 58 or 59. So let me just give you a quick example to make sure you know how to count these 10 months and the eight months. So let's look at someone that was born 7-4-1958. Again, we have a 66 plus eight month full retirement age. And so the easy way to do this, just add 66 to that. So we know they turned 66 July 4th of 2024. All right. And so we know it's our birth month. So we'll do this way as we count our months. 7-1-2024, eight months. We would count on this way. August, September, October, November, December, January, February, March. So this person with a birthdate 7-4-58 has a 3-1-2025 full retirement age. That's the exact month and year. Let's look at someone born 7-4-1959. So again, we know we're going to add 66, so that's 10 months. Right. So we know that July 4th of 2025, they actually turned 66. All right. We just add 66. So we're going to count our 10 months because that's how we get our full retirement age. So again, we'll go back here and just make it the first of the month. So we'll go August, September, October, November, December, January, February, March, April, May. So 5-1-2026, that person would have hit their full retirement age with a date of birth of 7-4-1959. So that's where we start establishing our full retirement age, exact month and year. Hey, if you found this video helpful and you want to see more Medicare information just like it, then go below, right below the video, and you can give us the thumbs up as well as subscribe to our channel. And every time I put a new video, which is about two every week, you'll be notified of that video. And others just like you who need this vital information will get it as well. All right. Now, secondly, what I want to talk about would be the actual Social Security benefits that we qualify for on a monthly basis. Okay. How those are calculated. And so I want to begin by talking about someone that was born in 1960 thereafter, which meant they have a full retirement age of 67. And so right now, full retirement age, 67. Right now, the average benefit is right about $2,000 on a monthly basis. Okay. And so, but we know that we can actually take our Social Security as early as 62, and we can actually delay it up until age 70. So let's look at the impact of someone that had a $2,000 primary insurance amount. That's that full retirement age amount. If they were to take one year early, what's going to happen? Well, they're going to lose 6%. Okay. And so they're going to get a reduction of about $120 a month on their check. So that check's going to be $1880. Instead, if they take two years early, they're going to lose 12%. Of that. Again, they lost $240. They take three years early, they lost 8%. If they take four years early, they're going to lose 24%. And then if they take five years early, they're going to lose a full 30%. So instead of getting $2,000 in this scenario, they're going to get $1,400. Now, keep this in mind. This is the reduction when it comes to retirement benefits. If you're going to take spousal benefits early, it's actually greater than this. It would be $9.375, another $9.375, another $9.375, and then 5%, 5%. So it's very hefty if we're going to take our spousal benefits before we hit our full retirement age. All right. Now, I just thought this would be very interesting for us to note, since we had these numbers up here, that when people do make the decision to take their Social Security early, what happens, and let's just use this example here. I'm eligible for $2,000 at full retirement age, but if I take five years earlier, I'm only going to get a check for $1,400, but I have that check. And so if I took five years early and I compared it to waiting, I'd had $1,400 times 12 times five years. It's a tremendous amount of money. And so what we always have to decide on, is that a good decision or not? Well, it just depends on how long you live. So when someone decides to take at 62, they're going to take less than they would here. But notice, we call this the break-even point. And let me explain what I mean by that. Here's what I mean. If someone were to live beyond 78, in other words, they took at 62 and they lived beyond 78, then say, hey, that may not have been the best decision, because that $600 reduction is now going to be permanent. All right, so that's the break-even. Now, if they passed away prior to that, then it would have been good. Of course, we don't know how long we're going to live. But the point is, that's just to come into our thinking as we make this decision about when to take Social Security. If we take it early, again, there's going to be a certain break-even point. Now, if I took five years earlier, break-even 78. If it's four years early, again, if I live beyond 80, then I'd say, oh, that wasn't a good decision. Again, three years early, 81. Two years early, 82. One year early, 83. So when people have longevity in their family line, sometimes it's good to wait to full retirement age. Now, if you have to have the money, you have to have the money. That's all there is to it. But again, there's a cost to that if we live longer. All right. Now, we don't have to take it full retirement age. We actually can grow the account. And so what we can, we call these delayed retirement credits. So we actually can increase that amount and get a gain of 8%. And so, again, we'd go to 2160 instead of 2. Go to 2320. So now we grew it 16%. And then we can grow it another 8% to a full 24%. Again, no one takes past 70 because it's not going to grow beyond that other than cost of living adjustments. And so the point is, we can grow it. But if I do that, what happens? So if I'm down here and I grew that check by $480 and I waited, my check's going to be bigger. But I gave up that cash flow of $2,000 a month, which is $24,000 a year for three years. I didn't have that money. So again, there's going to be a break even. So if I were to pass away before 80, not a good decision. If I live beyond 80, good decision. You see the whole point. So as we delay, we just have to live a little bit longer. So if someone has family that's living to be 85, 88, 90 years old, sometimes if you have a history of longevity within your family, if you don't have to have the money, sometimes it's good to delay that and get that additional extra 8% every year. Now I shared all the information with you because if we decide to take our Social Security before full retirement age, we're going to take less and it's a permanent reduction. But the second issue has to do with our topic during this video. And that is this, what we call the earnings test. And so the earnings test is also going to apply if I take my Social Security benefits before I hit my full retirement age. Now, if I take it for retirement age on, I can work and make as much money and there's no penalty, no consequence to my Social Security at all. But again, if I'm going to take it prior to full retirement age, I'm going to have to live with the rules of this earnings test. And so let me explain how that works. Now, when people talk about taking Social Security before full retirement age, this earnings test actually carries a penalty. And so I want to be real clear on what income is counted as part of the test and what's not. So the first thing as we talk about what's counted is we refer to this as earned income, earned income, right? This is not passive income, investment income, it's earned income. So what does this mean? Well, this would be my wages, which would be, of course, your W-2 income. This would be your 1099 if you're paid that way. If you're self-employed, this is going to be your net self-employment income, all right? And so that is what is going to be tested. But you also have to know what's not going to be tested because not everything is. And so there's a list of things, actually seven of them that will not apply at all to the earnings test. The first one would be your investment earnings. It could be investment property, it could be some brokerage account, any kind of investment like that. You don't have to count that within the earnings test. Interest income would be off limits, pension income, annuity income, capital gains, not part of the equation, your withdrawals, your distributions from your IRAs, your 401k plans, again, not counted. And then lastly, unemployment benefits. So again, those things are off limits. So again, we're just counting earned income with the earnings test. Hey, if you've come to the place where you know you're going to have to make some Medicare decision pretty soon and you want to make the right one, one of the best ways to do this is to go down below and you'll see in the comment section there the very first pinned comment at the top. You can actually click on the link there and you will book a call and you'll book a call with one of our Medicare guides. All the guides with our company, I have personally trained them. They're professional, they answer all your questions and they'll show you your Medicare options so that you'll be confident in your decisions. Let's get back to the video. All right, that brings us then to really our final question, the most important question, and that is this, how does this earnings test work? Okay, so to give you this illustration, I'm going to come up with another birth date like I did earlier, and this is going to be someone that is born 7-4, 1960. Now, as we saw earlier, anyone born 7-4, 1960 or 1960 and beyond is going to have a full retirement age of what? Of 67. So this person will be eligible for retirement age of 2027. So 67 plus 60, that's their exact full retirement age in month, July of 2027. So how would this earnings test apply to someone with that date of birth? All right, so we put this graph together to kind of make this make sense. And so what we have with an earnings test is we have a low amount of an earnings test, higher amount, and then an unlimited amount. And so the low amount this year, as we're talking about 2025, is $23,400 for the whole year. So of your wages or your net self-employment income, your 1099 income, if we make above that limit, now we're going to be penalized. And so what happens, for every $2 we make above that, they actually take $1 out of our Social Security check. And I'll explain how they take that out here in just a minute, but that's the penalty. For every $2 above, they take $1 out. Now, we have a higher amount. Now, the higher amount, I'll show you the exact dates when that applies here in just a second, but the higher amount for 2025 is $62,160 for the year. And just so you know, if you happen to reach this mid-year, it's still for the whole year. It's not prorated on a monthly basis. You actually can make that the full year. And so what happens if I make above that, though, for every $3 I make above it, I'm going to be penalized by $1. So I can make almost three times as much money, and the penalty is really substantially less. But once I hit my full retirement age, that exact month, that full retirement age, exact month of year, which in this example was what, 7-1 of 2027, what happens is it's unlimited. There's no amount. In other words, I can make as much money at work, draw my Social Security, and there's no penalty whatsoever. So again, zero penalty after I've hit full retirement age. All right, so now let's talk about the time frame, because this is where it's a little bit more confusing. And so the time frame for the low amount is this. In this example, someone we know can start taking Social Security as early as 62. And so this person could have been eligible for Social Security 7-1 of 2022. And if they took it that time, they're subject to the low amount up until, now watch this, all the way up until December before the year they turn. So that would, in my example, would have been 12 of 2026, because the year they turn is 2027. So from the time I'm first eligible until the December before I hit my full retirement age, month and year, I can only make this much money. So again, if I make two above, they take a dollar out. So let's keep it real simple. Let's say that someone's eligible for a Social Security benefit of $2,000 a month. And let's suppose that they're above this amount, exactly $12,000. Okay, so they made, what would that be, 35-4, exactly 12, to keep the math simple. So they're above 12. So for every two above, they take a dollar out. So if I'm above 12, that means my penalty in this example would be $6,000, $6,000. And so what they're going to do is they're going to withhold three months of my Social Security checks. So this penalty is actually front-loaded. You pay it all in advance. And so if my penalty was $8,000, they withhold four months of checks. But they're going to withhold that full amount. And then once that full amount is set aside, then they turn on my Social Security checks. That's why you'll have people say, well, I don't get my first check till April. Or I don't get my first check till July. Well, why? Because this earnings test applies. And they're setting that money aside. Now, just so you know, you do get that money back eventually. But it is not lump sum. They have a very complicated formula you follow. I'm not going to take the time to teach that today. I do know it. But the point is, it will be given back to you. But it's spread out over time. It's kind of prorated as they recalculate your benefit when you hit your full retirement age. So you do get it back. But again, it's not lump sum. All right. So let's go to this one. So what happens in the higher amount, this would be all the months that are remaining in the year before I hit my full retirement age. All right. So in this example, this would be 1 January of 2027, all the way up until June of 2027. Right? Because once I hit my full retirement age, I don't have an earnings test. And so these six months, I could fully make that $62,000. It's not prorated. You can make the full amount. No problem. And if you do make above that, then again, for every three, they take a dollar out. And so again, let's just keep it simple. Let's say I'm above, let's say $9,000 above. So I'm in at making $71,000. So for every three above, they take a dollar out. So if I'm above nine, that means they're withhold $3,000 of checks. And so my benefit is $2,000. They're actually going to withhold two full months, even though you overpaid it. It's the way they do it. They don't partial pay anything. So they withhold that amount, set it aside. Again, it's prorated at a later date. So again, all those months of the year return, we have the high amount. And then earnings test goes away once we hit our full retirement age. Okay. So again, from now on out, if I take my Social Security, anytime after full retirement age, you can work as much as you want, make as much money as you want, and there's no impact at all to your Social Security check.