Working Past Age 62 Could Quietly Shrink Your Social Security Checks

Even though 62 is the earliest age to sign up for Social Security, retirees are often advised to wait longer to file. If you don't sit tight until full retirement age arrives, you'll reduce your monthly benefits on what's generally a permanent basis. If you don't have a lot of retirement savings, that could quickly become a problem.

But that's not the only issue with claiming Social Security early. If you file for benefits before full retirement age but continue to work, your monthly checks could shrink.

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How Social Security's earnings test works

You're allowed to hold down a job while collecting Social Security. And once full retirement age arrives, you're not subject to an earnings test.

Prior to full retirement age, you are. Exceeding the earnings-test limit in any given year could lead to withheld Social Security benefits that shrink your checks temporarily.

This year, the earnings-test limit is $24,480 for people who won't reach full retirement age by Dec. 31. Beyond that level of wages, $1 in Social Security is withheld per $2 of income.

For people reaching full retirement age by Dec. 31, the earnings-test limit in 2026 is $65,160. Beyond that point, $1 in Social Security is withheld per $3 of income.

But all told, if you claim Social Security before full retirement age, working past age 62 could lead to smaller benefits than what you're expecting. So it's important to know what the earnings-test limits entail, and how they might affect you.

Understand what happens to withheld benefits

You may find the idea of having Social Security benefits withheld due to earning too much unfair. And you wouldn't be alone.

In fact, some advocates argue that Social Security should get rid of its earnings test. Part of the reason it was implemented in the first place was to encourage older workers to retire and reduce competition for jobs at a time when employment opportunities weren't so plentiful.

At this point, Social Security can benefit from people continuing to work. The program is facing a revenue shortage in the coming years that could result in benefit cuts, and encouraging workforce participation only helps the situation. Since the earnings test effectively serves as a penalty for those who work while collecting benefits, it does the opposite.

The good news is that benefits that are withheld due to exceeding the earnings-test limits are not lost forever. Rather, what happens is that your monthly payments are recalculated once you reach full retirement age.

At that point, the Social Security Administration pays back those withheld benefits in the form of larger monthly checks. But in your early to mid-60s, you could see your benefits reduced quite substantially because this rule exists.

Should that stop you from holding down a job after filing for Social Security? Not necessarily. There can be benefits to working on top of giving your finances a boost.

Staying employed could help your physical and mental health. It could also allow you to maintain social connections and avoid isolation, which is something retirees risk once they stop having a job to report to.

So you may not want to stop working just because you're getting Social Security. But what you should do is familiarize yourself with the earnings-test limits, which can change from year to year.

That way, you'll know exactly how large your paychecks from work can be before you run into issues with withheld Social Security benefits. More importantly, if you realize you will be subject to withheld benefits, you'll at least be able to plan for those reduced checks so they don't come as a shock and throw your budget out of whack.

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