The Social Security Rule That Matters Most Once You’re Within 1 Year of Retirement

If you're closing in on retirement, there's a good chance you've spent time thinking about your claiming age. Should you file at 62, wait until full retirement age, or hold out until 70 for a larger check? That decision matters, but it's not the only one that can affect how much money actually lands in your bank account during your last stretch of work.

There's a lesser-known Social Security rule that can quietly reduce your benefit if you claim while still earning a paycheck, even for part of a year. It rarely comes up in retirement planning conversations until it's almost too late to plan around it. Understanding how it works before you file could help you avoid an unpleasant surprise on your first few Social Security payments.

The retirement earnings test, explained

The rule in question is the Social Security retirement earnings test. It applies to anyone who claims Social Security retirement benefits before reaching full retirement age (FRA) while still working and earning above a certain threshold.

Here's how it works, according to the Social Security Administration (SSA): if you're under FRA for the entire year, the SSA deducts $1 in benefits for every $2 you earn above the annual limit. For 2026, that limit is $24,480 per year, or $2,040 per month, according to the SSA's 2026 COLA fact sheet.

If you'll reach FRA sometime during the year, a more generous limit applies to the months before you hit that milestone. For 2026, that limit is $65,160, and the SSA withholds $1 for every $3 earned above it, counting only earnings in the months before you reach FRA. Once you reach full retirement age, which is 67 for anyone born in 1960 or later, the earnings test disappears completely. From that point forward, you can earn any amount and still receive your full benefit.

Why this rule gets overlooked

Most people spend years hearing about Social Security's claiming-age tradeoffs, since that decision gets discussed constantly. The earnings test, by contrast, only matters in a narrow window: the period after you start collecting benefits but before you reach full retirement age, while you're still working.

For many soon-to-be retirees, this window is exactly their final working year. Someone might plan to claim Social Security at 63 while finishing out a part-time consulting contract, or someone might file early while a spouse keeps working a few more months to hit a pension milestone. If they don't realize their earnings could trigger a withholding, the first few Social Security payments can look very different from the estimate they saw on their SSA statement.

A practical example

Consider a worker who turns 63 in 2026 and decides to claim Social Security while still working part-time. Say this person is entitled to $1,600 per month in benefits, or $19,200 for the year, and expects to earn $30,000 from part-time work, which is $5,520 over the $24,480 annual limit.

Under the earnings test, the SSA would withhold $1 for every $2 earned above the limit, meaning $2,760 in benefits would be withheld for the year. That's a meaningful dent in expected income, even though the money isn't gone forever. The SSA notes that withheld benefits aren't lost permanently; once you reach full retirement age, your benefit is recalculated to credit you for the months benefits were withheld. Still, that recalculation happens later, which means the near-term cash flow hit is very real for someone counting on a specific monthly amount.

The SSA also has a special rule for the first year of retirement. Even if your total annual earnings exceed the yearly limit, you can generally receive a full benefit for any whole month the SSA considers you retired, meaning your earnings for that specific month fall under the monthly limit, as long as you're not performing "substantial services" in self-employment. This nuance matters most during the calendar year you actually stop working, which is often the same year someone first claims benefits.

Steps to take in your final working year

A few practical steps can help you understand how this rule might affect your specific situation before you file.

Estimate your expected earnings for the year you plan to claim

Add up wages, self-employment income, bonuses, and any other earned income you expect between January and your filing date. Compare that total to the applicable annual limit based on whether you'll reach full retirement age that year.

Check whether you'll reach FRA during the claiming year

The higher $65,160 limit and the gentler $1-for-every-$3 withholding only count earnings in the months before the month you turn full retirement age, so the timing of your birthday relative to your filing date matters.

Use your my Social Security account to review your benefit estimate

This online account lets you view your earnings record and projected benefit amounts at different claiming ages, which can help you model different scenarios.

Consider whether delaying your claim would sidestep the test entirely

Delaying your claim until after FRA, or until earnings drop, is information to weigh, not a directive. A financial advisor or the SSA's own planning tools can help in thinking through the tradeoffs based on a person's full financial picture.

Call the SSA directly if your situation is complicated

Dual-income households, self-employment, or irregular bonus income can make the earnings test harder to estimate on your own. The SSA can be reached at 1-800-772-1213.

Bottom line

The retirement earnings test isn't a penalty for working. Money withheld under this rule generally comes back in the form of a higher monthly benefit once full retirement age is reached. But in the short term, it can mean a smaller check than expected during a year when a budget may already be tight from the transition out of full-time work.

Checking this rule before filing, rather than after the first reduced payment arrives, allows time to adjust a filing date, a work schedule, or expectations while options are still open. With little time left to build additional savings once someone has left the workforce, a quick calculation in the final working year could help avoid a costly surprise.

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