Should I Take Social Security While Still Working?
While you can collect your Social Security as early as age 62, you don’t have to take it then. I know a lot of people do, and perhaps some are unaware that they can wait. If you are still working, you are eligible to collect benefits, but it may make sense to delay. Here’s why:
- If you are younger than your Full Retirement Age (FRA) your Social Security may be reduced by other income sources
- You are locking in a lower benefit by starting payments earlier
First, what is your Full Retirement Age? The FRA represents the age where workers can claim their full, unreduced retirement benefits. This started at age 65 when Social Security began and has been gradually increasing to age 67. Your FRA is based on when you were born, and you can find that on the ssa.gov site. There is a fun interactive chart that shows your benefit at any age, too. When you print out the statement, note that the “Your payment would be about” figure at the top of the Social Security statement is their estimate of your benefit at your Full Retirement Age.
Now that you know your Full Retirement Age, if you are still working, what happens to your benefit? There is an earnings test where some or all of your benefit amount is withheld. For 2021, the reduction is a $1 benefit reduction for every $2 you earn above $18,960. If you happen to reach your FRA during 2021, then benefits are reduced by $1 for every $3 you earn over $50,520 for the months before your FRA birthday. This is important because if you were planning to live off both your income and Social Security benefits, a potential benefit reduction might throw off your plan! After your reach FRA, there is no more earnings test—you can work and earn as much as you want and still collect your full benefits!
Can you work a part-time job, get Social Security benefits and be younger than the FRA? Absolutely. Social Security considers you retired as long as you are earning $1,580 a month or less. This is that $18,960 maximum threshold before the earnings test kicks in! Note that this maximum earnings threshold inflates every year.
Do you ever get these withheld benefits back? Yes, this withholding is only temporary. After you reach FRA, you’ll be given a credit for the amount that was withheld due to excess earnings, paid out over time.
Even if you’ve started collecting Social Security while still employed, your benefits are recalculated only if your latest year of work is one of your 35 highest earnings years. You would then be paid any increase due the following year. The recalculation for the extra years of working may not be greater than the added benefit from delaying taking Social Security. Remember that for every year from 62 to Full Retirement Age, there is a discount on your total benefit. If your income is greater than the maximum threshold and benefits would be withheld or mostly withheld anyway, it may be a better idea to delay taking Social Security.
In summary, you may be thinking about how you are going to pay for your living expenses as you reach age 62 and think that Social Security can supplement your income while you’re still working. That could be true, but we don’t want you to be surprised if benefits are instead withheld. Now you understand how taking Social Security while you’re still employed will affect your benefit!