The Social Security first year of retirement rule lets people exclude from Social Security’s annual earned income limit any pre-retirement wages they earn in the calendar year they start receiving Social Security retirement checks. This helps new retirees avoid the penalty for exceeding the annual earned income limit.
You can collect Social Security retirement benefits and still have a job, but there are limits on what you can earn before a penalty kicks in.
The Social Security Administration can reduce your Social Security retirement benefits if you do both of these things:
- Apply for Social Security retirement benefits before reaching your full retirement age.
- Are still employed when you begin taking Social Security retirement benefits and earn more than the annual limit from work. The limit is $24,480 in 2026.
For many new retirees, that income limit seems to introduce a problem: If you begin taking Social Security retirement benefits midyear, what happens if you make more than the limit while you’re still working? Would your benefit checks suffer through your first year of retirement?
That’s where Social Security’s first-year rule comes in. If you earn income in the months before you start collecting Social Security, it doesn’t count toward your annual earned income limit.
For the remainder of that first year of retirement, you face a monthly earnings limit, rather than an annual limit. The annual limit applies in the subsequent year.
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AD Advertisement Unless you retire on Jan. 1 of any given year, you’ll probably earn income during the calendar year in which you retire. The later in the year you retire, the more you’ll earn from your job, assuming your earnings are relatively consistent.
For example, say you retire on July 1. You’ll have earned six months of income in the year by the time your Social Security benefit begins.
The Social Security first year of retirement rule addresses this timing issue.
- If you retire before your full retirement age, the only income that counts toward the limit is the income you earn in the months after you retire. So if you retire on June 30, for example, you only need to worry about earnings in July and after.
- Instead of an annual limit in your first year, you’ll face a monthly limit that equals the monthly average of the annual limit. The monthly limit is $2,040 in 2026.
- If you exceed that limit in any given month, you won’t receive a Social Security benefit that month. In other words, if you go $1 over the limit, you lose your check, whatever the amount. This is different from the penalty in subsequent years, which equals half of your earnings above the limit.
- After your first "year" of retirement, you move to the annual limit until you hit full retirement age. Note that this refers to a calendar year, which may not equal a full 12 months of retirement.
Full retirement age – Social Security
| Year you were born | Full retirement age |
|---|---|
| 1943 through 1954 | 66. |
| 1955 | 66 and 2 months. |
| 1956 | 66 and 4 months. |
| 1957 | 66 and 6 months. |
| 1958 | 66 and 8 months. |
| 1959 | 66 and 10 months. |
| 1960 and later | 67. |
What happens if you work beyond your first year of retirement
The rules change after the end of your first year of collecting a Social Security retirement benefit.
If you haven’t reached full retirement age
- If you earn more than the annual allowable limit, Social Security reduces your benefit. The limit is $24,480 in 2026.
- If you're self-employed, only your net profits count toward the limit.
- Your Social Security check is reduced by $1 for every $2 of earnings above the limit. For example, if your job earnings are $500 over the limit, your Social Security check drops by $250.
The year you reach full retirement age
- The Social Security Administration reduces your benefit by $1 for every $3 of earnings above the income limit in the year in which you reach full retirement age. In 2026 the income limit in the year a person reaches full retirement age is $65,160. So in this scenario, if your job earnings are $500 over the limit, your Social Security benefit drops by about $167.
- Your benefit increases when you reach full retirement age to account for any withheld benefits. Social Security gives the example of a person who turns 62 and receives $910 per month. If that person has 12 months of benefits withheld because of earnings above the limit, they would receive $975 per month in today’s dollars once they turn 67.
If you are past full retirement age
- The earnings limits and benefit reductions end in the month in which you reach your full retirement age.
- This means that working or running your own business won’t reduce your benefits, no matter how much you earn.
These rules only apply to income earned through work. Retirement distributions from a 401(k) or IRA, for example, do not count toward the limit. Income from pensions, other government benefits and capital gains also don’t count.
🤓 Nerdy Tip
Did you know that Medicare Part B premiums are usually automatically deducted from your Social Security retirement checks? Learn more about how much Medicare actually costs. The disadvantage to working in retirement is that your Social Security benefit could be reduced if you earn more than the limit. But that doesn’t mean that working in retirement never makes sense. Reasons that working can make sense, even if you face a penalty, include:
- It might be your best financial option. Maybe an unexpected retirement expense pops up after you begin collecting. If you need extra cash and you don’t have enough savings to cover it, working may be the best option, even if there’s a cost.
- Going slightly over the limit isn’t disastrous. Say you find a job that pays well but leads to a reduction in Social Security benefits. You might not want to lose the Social Security money, but the inflows from the job might exceed the lost benefits, meaning you still come out ahead financially.
- Working with a penalty might be necessary if you want to keep a job into your penalty-free years. You may want or need to work after you reach your full retirement age. If you already have the position you want, staying put may be better than leaving and hoping you’ll be hired back later.
- Your benefit may grow. The amount of Social Security you receive is determined in part by your highest years of earnings. If the amount you earn in one year while collecting Social Security is among your highest-earning years, the Social Security Administration may increase your benefit.
Frequently Asked Questions
What types of income count against the income limit?
The only income that counts against this limit are wages earned from a job. Income from annuities, interest, investment accounts, pensions, and government benefits does not count against the limit.
I’m already collecting Social Security, and my earnings this year are going to be significantly different from the amount I reported to Social Security. What should I do?
Contact Social Security at ssa.gov or call 1-800-772-1213.
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- 1. SSA.gov. Receiving Benefits While Working. Accessed Oct 29, 2025.
- 2. SSA.gov. Special Earnings Limit Rule. Accessed Oct 29, 2025.
- 3. Social Security Administration. Receiving Benefits While Working. Accessed Oct 29, 2025.
- 4. SSA.gov. How Work Affects Your Benefits. Accessed Oct 29, 2025.
- 5. Social Security Administration. How Work Affects Your Benefits. Accessed Oct 29, 2025.
