Is it worth turning on Social Security if you’re going to continue working prior to your full retirement age? Understanding Social Security payments is confusing and can be downright complicated, but it helps if you know the right questions to ask. I’m going to walk you through ways your paycheck could impact your Social Security checks.
What If I Want To Start Claiming Benefits During My Early Retirement Age?
If you start collecting Social Security while you are still working, it may affect your Social Security benefits. Some people choose to start collecting their Social Security before their full retirement age (FRA). The government determines your FRA according to the year you were born. To help understand your FRA, the Social Security Administration has a simple list here. However, you can start claiming benefits at 62 years old, which is considered early retirement.
For example, if you were born between 1943 and 1954, your FRA is 66 — that’s 4 years from your 62nd birthday that you can technically collect Social Security benefits.
Example Of Early Retirement
Let’s take a look at how taking early retirement at age 62, while still working, will affect your benefits.
The Social Security Administration will reduce your benefit if you are younger than your FRA and earn more than the yearly earnings limit — as of 2022, that limit is $19,560. If you are under FRA for the entire year, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit. 50 percent.
An example for you to consider. Let’s say your Social Security amount is $1,500 per month. You are 62, not retired, your FRA is 66, and your work income is $3,000 per month. Since your income from your job is more than $19,560 per year, your Social Security income will be reduced. We can break it down one step further:
- $3,000 (monthly income) X 12 (months) = $36,000
- $36,000 (yearly income) – $19,560 (social security wage threshold) = $16,440, which is over the limit
- $16,440 (overage) / 2 (for the reduction) = $8,220 in yearly reduction
The deduction would reduce your monthly Social Security income to $815.00 per month.
In The Year I Reach My FRA, How Will Working Affect My Benefits?
In the year you reach FRA, Social Security deducts $1 in benefits for every $3 you earn above a certain limit — and only up to the month before you reach your FRA. The limit for 2022 is $51,960.
What Does This Do To My Monthly Income?
Let’s say your social security amount is $1,500 per month. You are 66, not retired, your FRA is 67, and your work income is $3,000 per month, or $36,000 per year. Since your income from your job is under $51,960 per year, your Social Security income will not be reduced.
What Is Not Included?
There are some monies that are not included in your Social Security benefits while working. Your annuities, investment income, interest, veterans benefits, or other government or military retirement benefits are not counted against you.
What Is My Best Option?
If you wait until your FRA or even later, you will receive the greatest benefit. The month you reach your FRA, your paycheck is no longer considered in Social Security calculations.
There are also other factors, like pensions and even state regulations. The best way to avoid any problems is to work with a competent advisor that understands your needs and your situation. They will be able to successfully point out any flaws that you do not see and help you make the best decisions possible.
