Planning to Work While Claiming Social Security Early? Brace Yourself for This.

Source The Motley Fool

You can't claim Social Security retirement benefits until you turn 62, but there's no rule saying you have to be retired to do so. Many Americans choose to receive benefits while they're still working.

For some, it's a chance to enjoy a higher standard of living than they could off their paychecks alone. For others, it gives them the opportunity to gradually reduce their hours without affecting their monthly income.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

These strategies work well for some people. But for a certain group of workers, claiming Social Security while working comes with a hidden cost.

Two businesspeople discussing something in an office.

Image source: Getty Images.

Early claiming comes at a cost

The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. It's 67 for most workers today, though some older adults have FRAs as early as 66. You're allowed to apply sooner than this, but if you do, it's considered claiming early.

This gets you more checks, but it also reduces the size of each one. You lose 5/9 of 1% per month for up to 36 months of early claiming and 5/12 of 1% per month thereafter. Those with FRAs of 67 can lose up to 30% by applying for benefits right away at 62.

Early claimers who continue to work are at risk of even greater benefit reductions due to the earnings test. Under this rule, $1 is withheld from their benefits for every $2 they earn over $23,400 in 2025 if they will be under their FRA all year. Those who will reach their FRA in 2025 only lose $1 for every $3 they earn over $62,160. If they are at or over their FRA, they don't have to worry about the government withholding money from their checks for the earnings test, regardless of their annual income.

It's possible that some workers could get nothing from Social Security because of the earnings test. That could be a problem if they had counted on that extra income to cover some of their current expenses, but the withheld benefits are not gone forever.

Withheld funds come back to you after FRA (slowly)

Those who have money withheld due to the earnings test get it back in the form of a benefit adjustment at FRA. The government looks at how much it withheld previously and uses this information to determine the size of the increase. This is a one-time change. After this, you'll continue to get your new, higher amount for the remainder of your life with only small increases for cost-of-living adjustments (COLAs).

Though this is better than losing the money altogether, it might be less desirable for some than getting that extra money today. It may not always be possible, but if you can limit how much income you earn from your job, you might be able to minimize how much the earnings test takes from you or even avoid it altogether.

Keep an eye on your income throughout the year. And if you notice your Social Security checks begin to shrink due to the earnings test, you might have to adjust your budget accordingly.

The $22,924 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

View the "Social Security secrets" »

The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Bitcoin Price Forecast: BTC extends recovery as ETF records positive flows Bitcoin (BTC) price continues to trade in green above $91,500 at the time of writing on Thursday after rebounding from the key support level.
Author  FXStreet
Nov 27, Thu
Bitcoin (BTC) price continues to trade in green above $91,500 at the time of writing on Thursday after rebounding from the key support level.
placeholder
Bitcoin Takes a 'Major Leap Forward' with $97K Price Targets in SightBitcoin holds steady above $90,000 as traders eye $100,000, buoyed by Thanksgiving market lull.
Author  Mitrade
Yesterday 03: 47
Bitcoin holds steady above $90,000 as traders eye $100,000, buoyed by Thanksgiving market lull.
placeholder
S&P Slashes Vanke to Deep Junk, Warning of 'Unsustainable' Debt WallS&P has cut China Vanke’s rating to CCC- and warned its debt is “unsustainable” as the developer faces an 11.4 billion yuan maturity wall, seeks to delay a 2 billion yuan bond repayment and sees its securities plunge, stoking fresh worries that China’s property sector could slide back into crisis despite state ties.
Author  Mitrade
Yesterday 07: 09
S&P has cut China Vanke’s rating to CCC- and warned its debt is “unsustainable” as the developer faces an 11.4 billion yuan maturity wall, seeks to delay a 2 billion yuan bond repayment and sees its securities plunge, stoking fresh worries that China’s property sector could slide back into crisis despite state ties.
placeholder
Gold hits two-week top; eyes $4,200 as dovish Fed offsets USD uptick and risk-on moodGold (XAU/USD) attracts fresh buyers during the Asian session on Friday and climbs to a two-week high, with bulls now eyeing to reclaim the $4,200 mark amid dovish US Federal Reserve (Fed) expectations.
Author  FXStreet
23 hours ago
Gold (XAU/USD) attracts fresh buyers during the Asian session on Friday and climbs to a two-week high, with bulls now eyeing to reclaim the $4,200 mark amid dovish US Federal Reserve (Fed) expectations.
placeholder
Silver Price Forecast: XAG/USD bulls remain focused on the $54.40 levelSilver remains steady near $54.00 after rejection at $54.40 area.
Author  FXStreet
20 hours ago
Silver remains steady near $54.00 after rejection at $54.40 area.
goTop
quote