Though you're not entitled to your full monthly Social Security benefit until you reach full retirement age (FRA), which falls somewhere between 66 and 67, depending on your year of birth, many seniors opt to file at the earliest possible age of 62 and receive their benefits sooner. There's also the option to delay benefits past FRA and boost them in the process, all the way until age 70. But no matter how old you are when you first start collecting Social Security, there are certain rules you should be aware of. Here are some important ones.
1. Your benefits may be taxed
Many seniors are shocked to learn that their Social Security benefits aren't theirs to keep in full. Rather, those benefits are often subject to taxes.
To see if you'll pay taxes on your benefits, you'll need to calculate your provisional income, which is the sum of your annual non-Social Security income plus half of your annual benefit. If that total falls between $25,000 to $34,000 and you're single, or between $32,000 and $44,000 and you're a married couple filing a joint tax return, you could be taxed on up to 50% of your benefits. And if your provisional income exceeds $34,000 if you're single, or $44,000 if you're married, you could be taxed on up to 85% of your benefits.
Furthermore, there are 13 states that impose their own tax on Social Security. Retiring in one of them could result in you keeping even less of your benefits.
2. Some of your benefits may be withheld if you earn too much money
Once you reach FRA, you can earn any amount of money and not have it impact your benefits. But if you claim benefits before FRA and still work, you'll be subject to an earnings test limit that changes from year to year.
In 2021, you can earn up to $18,960 without having your benefits affected. From there, you'll have $1 in Social Security withheld for every $2 you earn. If you'll be reaching FRA at any point in 2021, that limit increases to $50,520, giving you a lot more leeway. But beyond that point, you'll have $1 in Social Security withheld for every $3 you earn above that limit.
Benefits that are withheld in this scenario aren't forfeited permanently; they're paid to you once you reach FRA in the form of a higher monthly benefit. But remember, claiming Social Security before reaching FRA reduces your monthly benefit, and that cut is permanent.
3. You can undo your filing if you claimed benefits too early
Some people claim Social Security ahead of FRA and regret it afterward. If that happens to you and you realize your mistake soon enough, you may have a way out.
You're allowed one do-over in your lifetime with regard to Social Security. If you withdraw your benefits application within a year and also repay all of the money you collected in benefits by that point, you'll have the option to undo your filing and claim Social Security later in life -- perhaps at or beyond FRA.
As such, you shouldn't assume you'll be stuck with a lower monthly benefit for life. If you filed at 62 because you were laid off at work and desperate for money, but you managed to get hired again at a well-paying job four months later, that could be a scenario where taking advantage of that do-over makes sense.
There's lots to learn about Social Security, whether you've started collecting benefits or not. But if you've recently filed, spend some time reading up on the program so you know exactly what to expect from it.