Early retirement doesn't always mean fully retiring early. Many Americans opt to begin receiving their Social Security benefits at 62, the earliest age possible. However, they also want to make extra money and keep working.
Are you thinking about collecting Social Security at age 62 and continuing to work? Here are four tremendously important things you need to know.
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1. You could have part of your benefits reduced
The most important thing to know, by far, about working while receiving early retirement benefits from Social Security is that you could have part of your benefits reduced. Why? There's a financial disincentive for claiming benefits before your full retirement age (FRA) and continuing to work.
The Social Security Administration (SSA) will reduce your benefits by $1 for every $2 you earn above an annual limit if you're under your FRA for the entire year. For 2024, that annual limit will be $22,320, up from $21,240 in 2023.
Your benefits will also be reduced by $1 for every $3 you earn above a higher limit during the year you reach your FRA, but only for the months before you reach your FRA. This higher annual limit will be $59,520 in 2024, up from $56,520 in 2023.
Note that the SSA includes wages your employer pays you, your net profit if you're self-employed, bonuses, commissions, and vacation pay as earnings in its calculations. However, any money you receive from annuities, government or military retirement benefits, investment income, pensions, or veterans benefits isn't counted as earnings.
2. You'll receive all benefits that were withheld later
When you reach your FRA, you can work as much as you want without the SSA withholding anything. Even better, you'll receive all of the benefits that were withheld earlier.
The SSA will automatically recalculate your monthly benefit when you reach your FRA. Your benefit payment will be adjusted to include any previously withheld amounts. This permanently increases your monthly retirement benefit.
3. COLAs will be added to any amount withheld
Don't worry about missing out on those annual cost-of-living adjustments (COLAs) that Social Security recipients are accustomed to receiving. The SSA will factor in the appropriate COLAs for any amount withheld as a result of continuing to work while receiving early retirement benefits.
4. Working could actually boost your base benefits
Now for what just might be the best news of all. Continuing to work after collecting Social Security benefits at age 62 could actually boost your base benefits. How? It's due to how retirement benefits are calculated.
The SSA uses the 35 years in your career where you generated the highest earnings in its benefits formula. It's possible that you'll earn more money in some or all of the years that you continue to work between 62 and your FRA than you did earlier in your career. If that's the case, those later years will replace the earlier earnings years in the SSA's benefits calculations.
You won't have to wait until you attain your FRA for your base benefits to potentially increase. The SSA reviews earnings every year for Social Security recipients who continue to work. It's an automatic process with benefit increases applied in December for the previous year's earnings. For example, if your 2023 earnings cause your benefits to increase, you'll receive the bump in December 2024.
