Social Security serves as a crucial income source for millions of retired seniors, and eligibility for benefits kicks off as early as age 62. But what if you're not actually retired by the time you're allowed to start claiming benefits? Should you sign up to start getting that money if you're still working and therefore have a paycheck coming in? The answer, in many cases, boils down to one key factor: your age.
Collecting Social Security while working
Your Social Security benefits are based on your top 35 years of earnings, but the age at which you first file for them can cause that number to go up, go down, or stay the same. If you file at full retirement age, or FRA, you'll get the exact monthly benefit your earnings record entitles you to. FRA is either 66, 67, or 66 and a certain number of months, depending on the year you were born.
Of course, you don't have to file for Social Security at FRA. You can claim benefits once you turn 62, but know that you'll reduce those payments by a certain percentage for each month you file early. There's also the option to delay benefits past FRA and boost them in the process.
What does all of this have to do with working and collecting benefits simultaneously? It's simple: If you haven't yet reached FRA and are working, you'll risk having a portion of your benefits withheld, depending on your earnings level. Now, that level changes from year to year, but in 2019, you can earn up to $17,640 before having benefits withheld. Once your income exceeds that level, you'll lose $1 in Social Security for every $2 in earnings.
If you'll be reaching FRA at any point this year, the rules are a little different. In that case, you can earn up to $46,920 without having benefits withheld. From that point on, you'll lose $1 in Social Security for every $3 in earnings.
Now, one thing you must keep in mind is that the benefits you have withheld in these scenarios aren't lost permanently. Rather, they're added back into your monthly payments once you reach FRA. But remember that the reduction in benefits you'll face by filing before FRA will be permanent unless you're able to withdraw your benefits application within a year of filing and repay every dollar you collected to the Social Security Administration. Therefore, if you haven't yet reached FRA and still have the option to earn a decent payment, you might ask yourself whether filing for benefits is even worth it.
Of course, once you reach FRA, you're free to earn as much as you'd like and still collect Social Security without having to worry about having benefits withheld. But again, if you're earning a respectable living, you might hold off on taking benefits and instead accrue delayed retirement credits that boost your monthly payments in the process.
When it definitely pays to claim Social Security, even when you're earning good money
If you're younger than age 70 and are working, then holding off on Social Security often makes sense. Once you turn 70, however, it absolutely pays to claim your benefits, regardless of the size of the paycheck you're earning at that time.
The reason? The delayed retirement credits that boost your benefits cease to accrue once you reach age 70, so there's zero financial incentive to delay Social Security past that point. As such, whether you're working or not at age 70 is really irrelevant -- you should plan on claiming your benefits, no matter what.
Earning money from a job doesn't automatically negate the need for Social Security. If you're only able to work part-time, for example, then you might need those benefits to manage the bills your paycheck can't cover. And thankfully, working and collecting Social Security at the same time is an option. Just be aware of the pitfalls of doing so before reaching FRA. At the same time, be sure to start claiming your benefits as soon as you turn 70, even if you're still working and your paycheck is such that you won't even notice the extra money in your bank account.