All through your working years, you pay Social Security taxes, knowing you'll reap the rewards later on with monthly benefits in retirement. You can begin taking Social Security benefits once you turn 62, but your full retirement age (FRA) -- which is the baseline for calculating the amount of your benefits -- is determined by the year you were born.

Birth Year Full Retirement Age
1943 to 1954 66
1955 66 and two months
1956 66 and four months
1957 66 and six months
1958 66 and eight months
1959 66 and 10 months
1960 or after 67

Data source: Social Security Administration.

You can delay your benefits past your FRA until you reach 70, increasing your monthly benefit. However, if you take benefits before your FRA, Social Security considers it early and will reduce your benefits based on how long you have until your FRA. If it's within 36 months, benefits are reduced by five-ninths of 1% monthly. Any months over 36 will reduce your benefits by five-twelfths of 1% monthly.

If you take benefits early, that doesn't mean you have to stop earning money altogether, but you have to monitor how much you make at work because you could potentially lower your monthly Social Security benefits.

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The Social Security earnings test

If you decide to begin receiving your Social Security benefits before your FRA and continue working and earning over a certain amount, you'll be subjected to the retirement earnings test (RET). The RET will further reduce your benefits before you reach FRA, and then add the reduced amount to your benefits once you reach FRA. They're essentially withheld during that time.

Imagine if your FRA age was 67, and you decided to take benefits at 62 while making over the allowed threshold. If the RET lowered your yearly benefits by $4,000, Social Security would've withheld $20,000 over the five years until you reach age 67. Once you reach 67, that $20,000 will be added to your monthly benefits, spread out over the remainder of your life.

For 2022, if you're under FRA and take benefits, your annual earnings limit is $19,560. If you'll reach your FRA in 2022, the most you can earn in the months leading up to your FRA is $51,960.

Why someone would take Social Security and still work

The usual question for most people is why someone would take their Social Security benefits and still work, since it's designed for retirement. Normally, you probably wouldn't, but instances can happen where someone leaves a job at age 62 or so, begins taking benefits early, and then returns to working (even if only part-time just to keep busy). Or, someone could decide to take benefits while working, knowing there's an income limit, and either doing their best to not go over it, or willingly take the reduction knowing they can likely recoup it on the backend after reaching their FRA.

Either way, going over the income threshold while taking Social Security benefits can add insult to injury; not only will your benefits be reduced from taking benefits early, but they'll also be reduced by your making over the limit.