The Social Security Rule That Shocks Older Workers

Key Points

• Many people want to claim Social Security at 62 when they first become eligible.

• Some older workers also want to continue earning some income while collecting Social Security.

• Senior workers may not be aware of rules that limit how much they can work while collecting benefits.

• The $23,760 Social Security bonus most retirees completely overlook ›

There are a lot of things that people don't understand about Social Security. This is true even for people in their late 50s and 60s who are getting ready to claim benefits.

Unfortunately, not knowing the rules can lead to very unpleasant surprises. In fact, many older workers could be in for a very nasty Social Security shock based on one key rule that often goes overlooked.

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This overlooked Social Security rule could have serious consequences for older workers

If you are an older worker and you are planning to claim Social Security, you need to know that there is an often-overlooked rule about the impact of working while you collect benefits.

See, you can claim your Social Security checks as soon as you turn 62, and many people want to claim them ASAP. However, if you also plan to hold down a job while collecting these benefits, this rule could cause you problems.

Social Security only allows you to earn so much while getting benefit checks if you have not yet reached your full retirement age (FRA). Once you have hit FRA, which is 67 for those born in 1960 or later, you can work as much as you want with no impact on your benefits. However, before that time, your benefits will be reduced by:

• $1 for every $2 you earn above $23,400 if you won't reach FRA at all during the year.
• $1 for every $3 you earn above $62,160 if you will hit FRA sometime during the year but haven't done so yet.

These limits prevent you from double-dipping and both earning a generous salary and collecting Social Security at the same time. Unfortunately, if you were hoping to start your benefits but also earn income to bulk up your 401(k) or even just to cover some of your bills, you're going to find that you can't do that.

The good news is, when you miss Social Security checks, you get credit for them later and your benefit will end up higher because of it. It's recalculated at your full retirement age to account for the months of benefits you missed. However, that doesn't help you if you anticipated working and getting benefits for a while before leaving your job for good.

Make sure you understand Social Security's work rules before claiming benefits

When you are involved in the retirement planning process, it's important that you understand this often-overlooked Social Security rule. You don't want to face a financial shock because you thought you could use Social Security to help supplement your paycheck, and find out you can't get benefits and a big salary at the same time.

Since you can't work an unlimited amount without affecting your Social Security benefits when you are below your FRA, you should think carefully about whether you are ready to claim your benefits -- even if that means cutting back on work or giving up some of your job-related income to avoid losing the retirement funds.

Alternatively, you may just decide you'd rather get benefits sooner, even if that means working a lot isn't in the cards. If that's the case, be sure you have enough money to support yourself with your Social Security and distributions from your 401(k), IRA, and other retirement accounts at a safe withdrawal rate. Otherwise, you could be left with regrets.

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