It's a dilemma many older workers face. You're finally old enough to apply for Social Security, but even with those monthly benefit checks, you wouldn't have enough money to quit your job just yet. Should you sign up for Social Security right away or wait until you retire to apply?
The answer isn't as cut and dried as you might expect. It's definitely possible to claim Social Security while you're working, but it's important to understand the consequences of that decision before doing so.
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What happens when you claim Social Security while you're still working?
The consequences of claiming Social Security while working depend on your age when you do so. If you sign up for benefits at or after your full retirement age (FRA) -- which will be between 66 and 67 for people not yet retired, depending on their birth year -- the only thing that might change is your tax bill.
The federal government taxes the Social Security benefits of seniors whose provisional income (their adjusted gross income (AGI), plus any nontaxable interest and half their annual Social Security benefits) exceeds certain thresholds. If your job pays you enough, it's possible that a portion of your Social Security checks could be taxable. But this could also be the case for someone who's fully retired if they withdraw enough from their retirement accounts.
Younger workers who claim Social Security could run into benefit taxes, too, but they also have to worry about the earnings test, which only applies to claimants while they are under their FRA. Simply put, if your annual income is high enough, the government will withhold a portion of your monthly payments.
In 2023, you lose $1 for every $2 you earn over $21,240 if you're under your FRA for the whole year. Those who reach their FRA this year only lose $1 for every $3 they earn over $56,520 if they exceed this threshold before their birthday. In 2024, these limits will rise to $22,320 and $59,520, respectively.
Fortunately, that money isn't gone forever. When you reach your FRA, the Social Security Administration recalculates your benefit and gives your checks a boost to account for the money it previously withheld. However, you still won't get monthly checks as large as you would had you waited until your FRA to sign up for Social Security in the first place.
That's because the Social Security program gives people smaller monthly checks to compensate for the additional payments they'll receive for signing up earlier. Those cuts -- 5/9 of 1% for each month early that you file, up to 36 months, and 5/12 of 1% for each month early beyond that -- are permanent. But every month you delay benefits past your FRA increases your monthly benefit by 2/3 of 1% until you reach your maximum benefit at 70.
Is it worth it to claim Social Security while working?
Whether to claim Social Security while you're still working is a personal decision. If you don't need those checks to cover your living expenses, you might prefer to delay taking benefits and get larger checks when you finally apply. If you live into your mid-80s and beyond, delaying the point at which you start taking Social Security should lead to your receiving a larger lifetime benefit from the program.
But it's OK if you don't want to wait. Even if your checks don't provide you with enough income to retire on at that point, they may give you enough of a boost that you could transition to part-time work if you choose. Or they could just give you extra money you could use to improve your quality of life.
You may also want to think about claiming early if there are others, especially dependents, who can claim Social Security on your work record. Minors and disabled children or grandchildren whom you care for may be eligible for Social Security checks as well, but they can only apply after you've signed up. Claiming their checks as well as yours could boost your household income even further.
And if you've already turned 70, you should definitely sign up for Social Security immediately, even if you're still working. Your checks won't grow any further after you reach this age, so continuing to delay benefits will only cost you money.
It's possible you could still run into the earnings test or benefit taxes, depending on how much other income you have. But these shouldn't keep you from enjoying your checks if you're ready to sign up. Just make sure you understand the consequences of your decision so you aren't caught off guard at tax time.
