Many Americans face a difficult decision when approaching retirement age – whether to start taking Social Security benefits early at age 62, or wait until their full retirement age (typically 66-67 years old). The allure of immediate income from Social Security can be tempting, especially amid today’s rising costs of living. However, collecting benefits at 62 comes at a steep cost – your monthly benefit amount will be permanently reduced by up to 30% compared to waiting.
So can you start Social Security at 62 while continuing to work? The short answer is yes, you can collect retirement benefits as early as age 62 even if you keep working. However, your benefits may be reduced or taxed if you earn over certain income limits. Understanding the potential impacts can help inform one of the most impactful financial decisions for Americans approaching retirement.
Key Facts About Collecting Social Security Early
Here are some key facts to know about starting Social Security retirement benefits at age 62 while continuing to work:
– Your full retirement age for collecting Social Security is typically 66-67 years old, depending on your birth year. Taking benefits at 62 results in a permanent reduction in your monthly payment.
– If your full retirement age is 67, collecting at 62 permanently reduces your monthly benefit by 30%. For a full retirement age of 66, the reduction is 25%.
– You can start receiving benefits as early as age 62, but your benefits will be reduced for each month you claim before your full retirement age.
– There is no penalty or reduction for earning income from work while collecting Social Security after reaching full retirement age. But income limits apply from ages 62-66.
– If you earn over certain limits ($19,560 in 2022), your Social Security benefits will be reduced by $1 for every $2 you earn above the threshold if you collect before full retirement age.
– Once you reach full retirement age, there is no limit on how much additional income you can earn from working without reducing benefits.
Factors to Consider at Age 62
As you approach age 62, there are several important factors to weigh when deciding whether to claim Social Security early while continuing to work:
Permanently Reduced Benefit Amount
Claiming at 62 results in up to a 30% reduction in your monthly payment compared to waiting until full retirement age. This reduction is permanent and will carry through the rest of your retirement. Waiting to claim until age 70 can actually boost your benefit by up to 32% over your full retirement amount.
Life Expectancy
Your life expectancy is a key consideration. Collecting early only pays off if you live a shorter than average lifespan. Claiming later results in fewer lifetime payments but each check is larger. Breaking even typically takes 12-15 years. If you live longer, delaying benefits produces greater lifetime income.
Spousal or Survivor Benefits
Your claiming age also impacts benefits for an eligible spouse or survivor. If you claim early at 62, it reduces the spousal or survivor benefit they may receive if you pass away. Waiting to claim until full retirement age maximizes this protection for others who may depend on your earnings record.
Other Income Sources
If you plan to continue working full time, you may already have sizable income from employment. Delaying Social Security enables you to postpone tapping into this source until later when other income sources may have declined or been exhausted. However, if you plan to work part time, some income from Social Security may help replace earnings.
Break-Even Analysis
Run the numbers for your situation using Social Security benefit calculators. Compare the cumulative lifetime payments from claiming at different ages. Identify your breakeven point taking into account your age, health and projected benefit amounts. This analysis can help inform the optimal age to claim.
Working While Collecting Social Security Early
While you can work and earn income while collecting Social Security as early as 62, your benefits may be reduced by 50-60% based on your earnings:
The Earnings Test
– Social Security applies an “earnings test” to benefits received before your full retirement age.
– In 2022, your Social Security benefits are reduced by $1 for every $2 earned over $19,560 if you are under full retirement age all year.
– In the year you reach full retirement age, the reduction is $1 for every $3 earned over $51,960 in months prior to attaining full retirement age.
After Reaching Full Retirement Age
– Once you reach full retirement age, there is no limit on earnings. You can work and earn as much income as you want without reductions in your Social Security payments.
– After full retirement age, working and earning additional income from employment can actually increase your Social Security since benefits are based on your 35 highest earning years. Higher recent earnings may boost your benefit amount.
Planning for Potential Tax Liability
– Up to 85% of your Social Security benefits may be subject to federal income tax if your provisional income exceeds $44,000 as a single filer or $84,000 if married filing jointly.
– Provisional income = Adjusted Gross Income + Non-Taxable Interest + Half of Social Security Benefits
– When planning, include potential income tax on benefits in projections of your total retirement income and tax liability.
Strategies to Maximize Social Security
If you plan to continue working in some capacity past age 62, consider these strategies to reduce impacts on your benefits:
Delay Taking Benefits
Postponing Social Security until full retirement age or even longer eliminates reductions from the earnings test. Each year you wait up until age 70 increases your benefit amount.
Watch Earnings Limits
Monitor your annual earnings relative to the limits that trigger reductions in benefits. If needed, adjust work hours at age 62 to keep income under thresholds.
Claim Spousal Benefits
Consider claiming spousal benefits at full retirement age while letting your own benefit grow until age 70. Spousal benefits are 50% of the working spouse’s amount at full retirement age.
Suspend Benefits
You can voluntarily suspend benefits once you reach full retirement age. This pauses payments enabling you to earn income without reductions while your benefit amount continues increasing up to age 70.
Coordinate Tax Planning
Manage provisional income levels to control the amount of your Social Security benefits that may become taxable each year.
Frequently Asked Questions
Can I collect Social Security at 62 and continue working full time?
Yes, you can start receiving Social Security retirement benefits at 62 even if you continue working full time. However, benefits may be reduced by up to 30% compared to waiting, and the earnings test could temporarily reduce benefits further by 50-60% if income exceeds annual limits prior to full retirement age.
What is the maximum I can earn while collecting Social Security at 62?
If you will be under full retirement age for the entire year, the 2022 earnings limit is $19,560. If you earn above this amount, your benefits are reduced by $1 for every $2 over the limit. A higher income threshold of $51,960 applies in the year you reach full retirement age but only for months prior.
Does working while taking Social Security at 62 affect my future benefit amount?
No, the reduction for claiming benefits early at 62 is permanent but your ongoing work earnings do not change this amount. After you reach full retirement age, working can actually increase your benefit slightly due to higher average lifetime earnings.
Should I claim Social Security early if I plan to keep working?
There is no single right answer. Claiming early benefits from Social Security while working makes sense for some but not all. Consider your age, health outlook, income needs, tax planning, longevity projections, spousal benefits and break-even analysis. Seek professional advice about your specific situation.
Can I change my mind about collecting Social Security after I start receiving benefits at 62?
Yes, you have a few options even after starting your benefits as early as age 62:
– You can voluntarily suspend benefits once you reach full retirement age. This stops payments while enabling delayed credits up to age 70.
– Between ages 62-70, you can withdraw your application and repay all benefits received. This resets your claim as if you never filed.
– After reaching full retirement age, you can voluntarily suspend and restart benefits at a later date to earn delayed retirement credits.
Conclusion
Claiming Social Security early at age 62 while continuing to work is an option, but not necessarily the best strategy for everyone. Carefully weigh the permanently reduced benefit amount against the value of delaying to increase future payments. Manage earnings to minimize impacts from the Social Security earnings test. Seek professional guidance about the nuances of your specific situation before deciding when to claim benefits. With smart planning, you can maximize this vital income source based on your broader financial and retirement goals.