S&P gains and early retirement: what the Social Security earnings test actually counts
The S&P 500's nearly 38% advance over the past two years has coincided with a pull-back in labor-force participation among Americans aged 55 and older, which stood at 36.9% in July. Against that backdrop, a practical question has…
Key takeaways
- Selling stocks or other investments to replace a paycheck does not trigger Social Security's retirement earnings test, which counts only wages from employment and net earnings from self-employment.
- For 2026, someone below full retirement age for the whole year faces a $24,480 earnings-test threshold, above which $1 in benefits is withheld for every $2 of excess earnings.
- For workers born in 1960 or later, full retirement age is 67, and filing at 63 permanently locks in 75% of the full benefit—about $1,875 a month on a $2,500 baseline.
- Delaying past full retirement age earns delayed retirement credits of 8% per year through age 70, raising a $2,500 baseline to roughly $3,100 before cost-of-living adjustments.
- Although investment sales avoid the earnings test, capital gains can still make up to 85% of Social Security benefits taxable income depending on total income.
The S&P 500's nearly 38% advance over the past two years has coincided with a pull-back in labor-force participation among Americans aged 55 and older, which stood at 36.9% in July. Against that backdrop, a practical question has sharpened for the cohort weighing an exit at 63: do monthly investment sales, used to replace a paycheck, trigger the Social Security earnings test? They do not.
Social Security's retirement earnings test, which applies before full retirement age, counts only wages from employment and net earnings from self-employment. For someone below full retirement age for the entire year, the threshold in 2026 is $24,480. Above that, the program withholds $1 in benefits for every $2 of excess earnings. Proceeds from selling stocks or other investments fall outside that definition entirely. The program's rules turn on the source of the money, not what it replaces.
The permanent cost of filing at 63
The earnings test may be a non-issue for portfolio sellers, but the claiming age is not. For workers born in 1960 or later, full retirement age is 67. Filing at 63 locks in 75% of the full benefit. On a baseline of $2,500 a month at 67, that reduction puts the monthly payment near $1,875, and the haircut is permanent. Waiting to 67 restores the full amount. Waiting past full retirement age earns delayed retirement credits of 8% per year through age 70, where that same $2,500 baseline would reach approximately $3,100 before cost-of-living adjustments. A brokerage account can provide the income bridge that makes delay possible, which is precisely the calculation worth modeling before filing.
Tax exposure the earnings test does not touch
Clearing the earnings test does not clear the tax bill. Capital gains on investment sales are not wages, so they leave the withholding threshold intact. They can, however, affect whether Social Security benefits become taxable income. Depending on total income, up to 85% of Social Security benefits can be included in taxable income once payments begin.
The years before claiming also offer room to manage the tax position. Spending from taxable accounts or making Roth conversions can reshape the income picture, even though those moves are invisible to the earnings test. For someone born in 1963, required minimum distributions from traditional retirement accounts do not generally begin until age 75, leaving a window to sequence withdrawals deliberately. Health coverage sits alongside all of this: employer insurance ends when the paycheck does, and Medicare does not begin until 65.
On balance, a strong equity market can underwrite the walk away from work. The earnings test will not claw back Social Security for portfolio income. The claiming-age reduction will.
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