If you’re a working retiree collecting Social Security benefits, the changes coming for 2027 could affect how much money you receive.
Along with updates to the cost-of-living adjustment (COLA) and the maximum taxable earnings cap, the Retirement Earnings Test Exempt Amounts are also increasing.
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For people who have started collecting benefits but continue to work, the exemption limits could have a meaningful impact, particularly if they rely on both their wages and Social Security benefits to make ends meet.
Why test exempt amounts matter
You can choose to start collecting Social Security benefits once you reach age 62, but for people born in 1960 or later, the Full Retirement Age (FRA) is 67.
Remember, starting benefits before your FRA means a permanent reduction in the amount you’ll receive.
You can continue working while receiving Social Security benefits, but if you haven’t reached your FRA, there is a limit to how much you can earn while still receiving full benefits. That limit is the Retirement Earnings Test Exempt Amount.
The Retirement Earnings Test Exempt Amounts typically increase each year, based on the national average wage index.
There are two exemption limits: a lower and higher amount. For the years before you reach your FRA, the lower exemption applies. In the year you will reach your FRA, the higher exemption applies.
For anyone who won’t reach their FRA in 2027, the exemption limit is $25,560. For those who will reach their FRA in 2027, the limit is $67,920. The higher limit applies only to earnings in the months before the month you reach your FRA.
If you’re subject to the lower exemption limit, the Social Security Administration (SSA) will withhold $1 in benefits for every $2 you earn above the limit. In the year you reach your FRA, $1 in benefits is withheld for every $3 you earn above the higher limit.
The withheld benefits aren’t lost forever. Once you reach your FRA, the SSA will recalculate your monthly benefit amount to account for the months they were withheld.
But for those who won’t reach their FRA next year, the benefit reductions can add up quickly. For someone earning $32,000 in 2027, that would mean $3,220 in Social Security benefits being withheld.
If you’re working and receiving benefits, you’ll need to tell the SSA how much you expect to earn in the coming year. If your circumstances change and your earnings differ from your original estimate, call the SSA to update your information. Otherwise, you could receive an overpayment that you’ll have to pay back.
Income that doesn’t count toward the exemption limits includes other government benefits, investment earnings, interest, pensions, annuities and capital gains, according to the SSA. However, contributions you make to a pension or retirement plan do count if they’re deducted from your gross wages.
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Other changes coming for 2027
Next year’s COLA starts in January 2027, with nearly 72 million Social Security beneficiaries seeing a 3.6% increase to their benefits, the SSA said.
According to SSA estimates, the COLA will mean the average retired worker’s monthly benefits will go from $2,095 in 2026 to $2,170 in 2027. For a couple, if both individuals receive benefits, the average of $3,238 before the COLA will increase to $3,355 a month in 2027.
The taxable maximum, which is the limit to how much of your earnings can be taxed for Social Security, is also going up in 2027, increasing to $192,300 from $184,500.
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This article originally appeared on Moneywise.com under the title: Social Security will let working retirees under 67 earn $25,560 in 2027 before it starts cutting their benefits
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
