One decision many older Americans struggle with is when to file for Social Security. If you claim benefits too early, you might reduce them on a permanent basis. But if you wait too long to sign up for benefits, you'll risk getting less money in your lifetime if you wind up passing away at a young age.
If you're still working, the decision to claim benefits can be even trickier. That's because there are rules you'll need to take into account that could impact your benefits.
Each year, Social Security imposes what's known as an earnings test for workers who earn money from a job but also collect benefits. Income that exceeds the earnings test limit could result in withheld benefits, so it's important to know what those thresholds look like. Here's what seniors need to know for 2022.
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What are the 2022 earnings test limits?
Before we dive into next year's earnings test limits, let's do a refresher on the rules for claiming Social Security. The earliest age to sign up for Social Security is 62. But you're not entitled to your full monthly benefit -- the one that's calculated based on your earnings history -- until you reach full retirement age, or FRA.
FRA depends on your year of birth. You can consult this table to see what yours looks like:
|
If Your Year of Birth Is |
Your Full Retirement Age Is |
|---|---|
|
1943-1954 |
66 |
|
1955 |
66 and 2 months |
|
1956 |
66 and 4 months |
|
1957 |
66 and 6 months |
|
1958 |
66 and 8 months |
|
1959 |
66 and 10 months |
|
1960 or later |
67 |
Data source: Social Security Administration.
Once you reach FRA, you don't have to worry about income from a job impacting your benefits. You can earn as much as you'd like without having any of your Social Security income withheld. It's when you're working and collecting benefits before FRA that the earnings test comes into play.
In 2022, you can earn up to $19,560 a year without it impacting your benefits. From there, you'll have $1 in Social Security withheld for every $2 you earn.
Withheld benefits won't be lost forever -- they'll be added back into your paychecks once you reach FRA. But remember, claiming Social Security early will result in a permanent benefits reduction. And that may not be worth it to you if you're just going to have benefits withheld due to your earnings.
Meanwhile, the earnings test limit in 2022 is much higher if you'll be reaching FRA next year. In that case, you can earn up to $51,960 without any impact to your benefits. From there, you'll have $1 in Social Security withheld for every $3 you earn.
Know the limits
If you're retiring from your career before reaching FRA, you may be interested in getting a part-time job to stay busy or boost your income. And to be clear, there are definite benefits to working during retirement. Just be sure to keep the earnings test limits in mind before you commit to a specific schedule.
If reducing your hours slightly puts you just below the threshold for having benefits withheld, then forgoing that bit of income could make sense. That said, you may decide you'd rather ramp up your part-time work hours and hold off on filing for Social Security altogether. Doing so could result in a higher monthly benefit for life, so that could be a smart decision you end up appreciating.
