Claiming Social Security while still employed is becoming more common, but it’s essential to understand the rules to prevent unexpected surprises with your monthly benefits.
According to Richard Johnson, AARP’s vice president of financial security, most retirees find it necessary to supplement their Social Security because the payouts often fall short of covering typical living expenses.
So, here’s what you should keep in mind.
Understanding How It Works
You can start receiving Social Security as early as age 62, but it’s important to note that your benefit could be reduced—by as much as 30%—compared to what it would be at your full retirement age (FRA). For those born in 1960 or later, the FRA is 67.
If you wait to claim benefits until age 70, you can earn delayed retirement credits, which usually results in about an 8% increase for each year you delay until you reach 70, at which point those credits stop accruing.
Here’s where it gets a bit complicated: If you earn income after starting to collect Social Security benefits before reaching your FRA, the Social Security Administration (SSA) can temporarily withhold some of your benefits if you exceed a certain earnings threshold.
This might sound straightforward, but it’s not. Essentially, for every $2 you earn over the limit, $1 will be withheld from your benefits until you reach your full retirement age.
Recently, the SSA revealed that the annual earnings cap for 2027 for individuals under full retirement age will rise to $25,560, up from $24,480 this year.
Once you reach full retirement age, this limit will increase to $67,920 for earnings made in months leading up to that milestone. The earnings test no longer applies in the month you turn 67.
After hitting that age, you can earn without any restrictions. It’s worth mentioning that while you won’t receive a lump sum for the benefits withheld previously, your monthly amount will be adjusted upward, effectively allowing you to recover the withheld funds over time.
Keep in mind that this earnings calculation doesn’t consider income from pensions, annuities, capital gains, interest, dividends, or any withdrawals from retirement accounts.
To better understand your situation, you might find it helpful to use the SSA’s calculator to explore your specific scenario.
Bradley Schurman, a demographic strategist and author, pointed out that the current system often forces people to continue working after claiming Social Security. He noted that while a 3.6% cost-of-living adjustment (COLA) helps, it still lags behind rising prices for everyday necessities like housing, food, insurance, and healthcare, especially in our current inflationary climate.
