Lately, our support team has received questions about clients who want to claim Social Security before full retirement age but plan to keep working.
That is not unusual. The earnings test has always been one of those rules that seems simple until a real client situation exposes the nuance.
Most advisors understand the annual earnings limit. Where the confusion often begins is when a client retires in the middle of the year after already earning more than that limit.
That is where the monthly earnings test, also known as the special earnings limit rule, becomes important.
It can allow a client to receive Social Security benefits for certain months after retirement, even when their total earnings for the calendar year exceed the annual limit.
For advisors, the takeaway is simple: When a client retires midyear, the annual earnings number may not tell the full story.
The retirement earnings test generally applies when someone:
In 2026, someone who will remain below full retirement age for the entire year can earn up to $24,480 before benefits are withheld. Social Security generally withholds $1 in benefits for every $2 earned above that amount.
A different limit applies during the year someone reaches full retirement age. In 2026, that limit is $65,160, and Social Security generally withholds $1 for every $3 earned above the limit. Only earnings received before the month full retirement age is reached are counted.
Once the client reaches full retirement age, the earnings test no longer applies to their retirement benefit. Other benefit types and situations, such as disability benefits, SSI, work outside the United States, or benefits paid to family members, may follow different rules.
That is the framework most advisors know. The problem is that it can lead to the wrong conclusion when a client stops working late in the year.
Consider a client who works through September and earns $70,000 before retiring.
The client files for Social Security beginning in October.
If we look only at the annual earnings limit, it appears the client has earned too much to receive benefits that year.
But that may not be the right answer.
Social Security has a special rule for the first year a client retires and files for benefits. Under that rule, a person may receive a full benefit for any whole month Social Security considers them retired, regardless of how much they earned earlier in the year.
For someone below full retirement age throughout 2026, Social Security generally considers the person retired in a month when:
For someone who reaches full retirement age in 2026, the monthly amount for months before the full retirement age month is $5,430.
In our example, the client may qualify to receive benefits for October, November, and December if they have no additional wages and are not continuing substantial work in a business.
The $70,000 earned before retirement does not automatically eliminate those later monthly benefits.
This is exactly the kind of issue that can create an unnecessary surprise if the advisor and client are focused only on the annual limit.
One common misunderstanding is that the monthly limit can be added to the annual limit.
It cannot.
The monthly test is an alternative method Social Security may use during the special-rule year. The annual test looks at total earnings for the year. The monthly test looks at earnings and work activity during individual months after the client is considered retired.
That distinction matters because the monthly rule is typically a one-year opportunity. A client who qualifies for monthly treatment late in 2026 should not assume Social Security will continue evaluating each month separately in 2027.
After the special-rule year, the annual earnings test applies.
Another common support question is whether a particular type of income counts toward the earnings limit.
The earnings test is primarily concerned with income from work.
It generally counts:
It generally does not count:
This is an important distinction for retirement income planners because the earnings test is not based on total taxable income or adjusted gross income.
A client could take a large IRA distribution without triggering the Social Security earnings test. That same distribution could still affect taxes, Medicare premiums and the broader retirement income plan, but it is not generally treated as earned income for this purpose.
That is why the better question is not, “How much income will the client have?”
It is, “How much will the client earn from work?”
The monthly rule becomes more complicated when a client owns a business, consults part time or continues professional work after leaving a full-time position.
For self-employed individuals, Social Security may consider both income and the amount of work performed. A client who earns little but continues providing substantial services may not be considered retired for purposes of the monthly rule.
This is especially relevant for business owners and professionals who plan to slow down rather than stop working.
Before relying on the monthly rule, ask how many hours the client will work, what duties they will perform and whether they will remain involved in managing the business.
With self-employment, earnings alone may not tell the full story.
Clients may also receive compensation after retirement for work completed before retirement.
Examples can include:
Social Security may treat these as “special payments” when the work required to earn them was completed before retirement or before the month of election.
That distinction can matter for a client who retires near year-end and receives a bonus or commission check in the following year.
The client may need to document when the payment was earned, so advisors should encourage them to retain employer letters and pay statements.
That documentation can help prevent a payment from being incorrectly counted against the earnings limit.
Clients often hear the word “withheld” and assume those benefits are permanently lost.
That is not how the retirement earnings test works.
When a client reaches full retirement age, Social Security recalculates the benefit to account for any months in which a full check was withheld because of excess earnings. The earnings test is not a tax, and the withheld benefits are not repaid as a lump sum.
For example, if 12 months of benefits were withheld, Social Security would recalculate the benefit as though the client had claimed one year later. That adjustment results in a higher monthly benefit going forward.
It is still important to avoid telling clients they simply “get the money back.” The adjustment comes through a higher monthly benefit at full retirement age, not a repayment of the checks that were withheld. Because the client gave up access to those benefits earlier, it may take time for the higher monthly amount to offset what was withheld. Household benefits deserve extra care because a spouse, child or survivor may not be affected in the same way as the worker.
That is why the earnings test should be modeled as part of the claiming decision—not explained only after Social Security begins withholding checks.
When a client wants to claim before full retirement age and continue working, I would encourage advisors to ask five questions.
The exact retirement month may determine whether the monthly rule is available.
Separate wages and self-employment earnings from retirement distributions, pensions and investment income.
For self-employed clients, consider both earnings and the services they continue to perform.
A spouse or eligible child may become entitled to benefits when the worker files. The advisor should evaluate the household result, not only the worker’s individual benefit.
Compare the proposed strategy with delaying benefits, changing the filing date or reducing work.
These questions are more useful than simply comparing expected earnings with the annual limit.
The monthly earnings test will not apply to every Social Security decision. But when a client retires in the middle of the year, it can lead to a different result.
Without the monthly rule, a client may assume that benefits will not begin until the following year because their annual earnings are too high. In reality, they may still qualify for several months of benefits after retirement.
The confusion usually comes down to timing. The client is thinking, “I retired in October,” while the annual earnings test is looking at income earned throughout the entire year. The monthly rule helps bridge that gap.
For advisors, the value is not simply knowing the earnings limit. It is knowing which rule applies, when it applies and how it affects the client’s filing strategy and cash flow.
That conversation is most useful before the client files—not after an expected benefit check fails to arrive.
Social Security Timing® includes the annual earnings test, helping advisors evaluate when clients should claim benefits while they are still working. The software also models survivor benefits, potential benefit cuts and several common alternative claiming strategies. Explore the software with a free 10-day trial.
This article is for educational purposes and reflects Social Security rules and limits for 2026. Earnings limits are adjusted periodically, and case-specific treatment should be confirmed with the Social Security Administration.