How Inflation Erodes Your Retirement Savings—and What to Do About It
How Inflation Erodes Your Retirement Savings—and What to Do About It Inflation is often called the “silent” threat to retirement, and the nickname is fitting. Unlike
The short version is that working can temporarily reduce your Social Security checks, but the money isn’t gone forever, and the rule stops applying entirely once you reach full retirement age. Let’s walk through how it actually works.
If you claim Social Security before your full retirement age (FRA) and continue to work, the Social Security Administration may withhold part of your benefit if your earnings exceed certain limits. The specific limit—and how much gets withheld—depends on how close you are to reaching your full retirement age.
For 2026, here’s how the limits break down:
If you’re under full retirement age for the entire year: You can earn up to $24,480 before any benefits are withheld. Above that, the SSA withholds $1 in benefits for every $2 you earn over the limit.
In the year you reach full retirement age: A much more generous limit applies. You can earn up to $65,160 in the months before your birthday, and the SSA withholds only $1 for every $3 you earn above that threshold. Only earnings in the months before you reach FRA count.
Once you reach full retirement age: The earnings test disappears completely. From that month forward, you can earn any amount—from a job, self-employment, or both—with no reduction to your benefit whatsoever.
For anyone born in 1960 or later, full retirement age is 67.
This is where a lot of confusion arises. The earnings test only counts money you earn from working: wages from a job and net income from self-employment.
It does not count income from sources like:
• Pensions
• Annuities
• Investment income, interest, and dividends
• Capital gains
• Withdrawals from IRAs and 401(k)s
• Other government benefits
So if your retirement income comes largely from your portfolio and retirement accounts rather than a paycheck, the earnings test may not affect you at all—even if that income is substantial.
This is the single most misunderstood part of the earnings test, so it’s worth stating plainly: benefits withheld under the earnings test are not lost permanently.
When you reach full retirement age, the SSA recalculates your benefit to account for the months in which checks were withheld. In effect, your future monthly benefit is adjusted upward to give that money back to you over time. Think of the earnings test less as a penalty and more as a temporary deferral of benefits you’ll ultimately receive.
That said, it’s still worth planning around. Having several months of checks withheld can affect your cash flow in the near term, which matters if you’re counting on that income for monthly expenses
There’s a helpful exception for people who retire partway through the year. Normally the earnings test looks at your annual income—which could be a problem if you earned a high salary in the first half of the year before retiring.
Under the special first-year rule, the SSA can instead apply a monthly limit for that initial year. If your earnings in a given month fall below the monthly threshold, you’re considered “retired” for that month and can receive a full check, regardless of how much you earned earlier in the year. This prevents a strong pre-retirement salary from wiping out your benefits in the year you actually stop working.
If you keep working beyond full retirement age, there are two potential upsides for your benefit:
If working in retirement is right for you—financially or personally—the earnings test shouldn’t scare you off. Remember that withheld benefits come back to you later, and that if you’re earning enough to trigger withholding, you’re likely earning enough to more than offset it.
The key is to plan intentionally. When to claim, whether to keep working, and how to coordinate your paycheck with your other income sources are decisions that ripple across your entire retirement. Getting them right can mean meaningfully more income over your lifetime.
At Davis Capital Management, we help clients integrate Social Security claiming decisions into a complete retirement income strategy. If you’re weighing whether—and when—to work while collecting benefits, we’d be glad to help you run the numbers for your specific situation.
2026 figures reflect the Social Security Administration’s announced cost-of-living adjustment and earnings-test limits. This article is provided for educational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified professional regarding your specific circumstances.
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