Social Security earnings limit confusion - reduced benefits despite staying under monthly threshold after retirement

Unfortunately, SSA applies the annual earnings test in your first year of retirement differently than you might expect. Even though you're staying under the monthly limit after you started receiving benefits, they still consider your total earnings for the year. Since you earned $28,000 before retirement, you're well over the annual limit (about $22,320 for 2025 if you're under FRA the whole year). The monthly earnings test only helps in the first year of retirement if your annual earnings would be under the yearly limit, but your earnings in certain months exceed the monthly limit. You should contact SSA directly to verify exactly how they're calculating your reduction. They'll withhold benefits based on how much you exceeded the annual limit, usually $1 in benefits for every $2 over the limit.

This EXACT thing happened to me last year. The system is completely broken! I retired in May, started benefits in June, stayed carefully under the monthly limits the rest of the year, and still got hit with reductions. When I called, I waited FOUR HOURS only to be told "that's just how it works sir" with zero explanation. Tried calling back three more times and either got disconnected or told different things each time. The left hand doesn't know what the right is doing at SSA!

What I don't understand is why they have the monthly rule at all if they're still going to count your pre-retirement earnings? I'm planning to retire in August (4 months before my FRA) and now I'm worried the same thing will happen to me. I've already earned about $35,000 this year. Should I just wait until I hit FRA to avoid all this mess?

i think ur misunderstanding how the earnings limit works. call ssa and they'll explain it to you. there's a grace year rule for the first year u retire but it doesn't work like u think.

I spent THREE DAYS trying to reach someone at Social Security about this exact issue last month! Every time I called, it was either busy signals or being on hold for hours only to get disconnected. Finally used a service called Claimyr (claimyr.com) that got me connected to an agent in about 20 minutes. They have a video showing how it works: https://youtu.be/Z-BRbJw3puU The agent explained that the monthly earnings test is only helpful in specific situations during your first year of retirement. Turns out I had completely misunderstood how it works too. At least I got a clear explanation and was able to plan accordingly.

It's not sketchy at all - they just help you get through the SSA phone system faster. The agent I spoke with was an actual SSA employee. Saved me hours of frustration!

To clarify on the "grace year" monthly earnings test that a few people mentioned: This special rule only applies in the first year you claim benefits. For any month during that first year where you earn below the monthly limit AND you did not perform "substantial services in self-employment," that month's benefit should be paid regardless of your annual earnings. However, there's an important detail many people miss: If you worked for wages (not self-employed), SSA defines "retirement" as when you substantially reduced your work hours and earnings. If you were working full-time until March and then switched to part-time, SSA should apply this monthly test starting in April. I recommend requesting an explanation of their calculation in writing. You should also ask specifically why the monthly earnings test wasn't applied in your case, as it sounds like you might qualify.

Update: I FINALLY got through to someone at SSA after trying for days. The agent explained that I misunderstood how the monthly earnings test works. She said that in the first year of retirement, they look at any month where I earned under the limit AND didn't perform "substantial services" as a month I should receive benefits, regardless of my annual total. But here's the catch - they're saying my part-time work still counts as "substantial services" even though I'm earning under the monthly limit! Apparently because I'm working more than 15 hours weekly at the bookstore (I work about 22 hours), they're considering it substantial work. This feels like a complete gotcha - stay under the earnings limit but still get penalized because of hours? I'm going to request a formal review. This just doesn't seem right.

Reading through all this, I'm seriously considering just waiting until I hit my FRA to avoid this mess altogether. The rules are way more complicated than they initially appear, and it sounds like even the SSA reps give conflicting information. Losing a few months of benefits might be worth avoiding the headache!