To avoid benefit reductions, it’s generally advisable to not collect retirement benefits until your full retirement age if you continue to work. You should consult your financial advisor to determine the best time for you to start collecting.
If you are younger than full retirement age and make more than the yearly earnings limit, your earnings may reduce your benefit amount.
- If you are younger than full retirement age for the entire year, $1 of benefit for every $2 of earnings will be deducted.
- If you reach full retirement age within the year, $1 for every $3 will be deducted.
- If you reach full retirement age within the month, $0 will be deducted, regardless of excess earnings.
Retirement Benefits While Working
If your earnings for the prior year are higher than one of the years used to compute your retirement benefit, then your benefit amount will be automatically recalculated.
If some of your retirement benefits are withheld, because of your earnings, your monthly benefit will increase starting at your full retirement age.
For 2017, the limit on earned income is $16,920 annually or $1,410 per month.11 The limit on earned income varies each year based on the cost of living.
EXAMPLE:
Henry is considering claiming early retirement benefits this year, at age 64. Social Security calculates that if he does so, he’ll receive $866 a month (which is about 13% less than if he waited until his full retirement age of 66).
But Henry also intends to continue working part-time, with an income that will be about $5,000 over the yearly limit on earned income. If he does claim the early benefits and makes that part-time income each month, Henry would lose one dollar out of two from the $5,000 he earns over the limit, which means $2,500 for the year.
So, by claiming early retirement and continuing to earn over the limit, Henry incurs a double penalty: His retirement benefits are permanently reduced by 13%, and he loses an additional amount every month (until he reaches full retirement age) to the extent he earns over the income limit.12 After reaching full retirement age, there is no Social Security limit on your earnings.
You should consult your financial advisor to determine the best time for you to start collecting.