Mystery Unlocked: How to Navigate Social Security's Tricky Earnings-Test Limits

Once you turn 62, you're allowed to sign up for Social Security at any time. However, you can't claim your full monthly benefit based on your personal wage history until you reach full retirement age (FRA).

FRA depends on your year of birth. If you're not exactly sure what your FRA is, you can consult this table to find out.

Data source: Social Security Administration.

It's important to know your FRA not just in the context of filing for Social Security, but in the context of working while receiving Social Security. You're allowed to earn income from a job while also collecting a monthly Social Security benefit. But if you're below FRA, your job-related income will be subject to an earnings-test limit.

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Exceeding that limit could result in having benefits withheld and repaid to you later on. As such, it's important to understand how the earnings-test income limits work.

A somewhat complicated system

Let's get one thing out of the way: If you claim Social Security ahead of FRA, your monthly benefit will be reduced. This means, for example, that if you're entitled to a $2,000 monthly benefit at an FRA of 67 based on your personal income history but you file at age 62, you'll be looking at a monthly benefit of $1,400 instead.

Reduced Social Security benefits are not eligible to be paid back. If you shrink your monthly benefit from $2,000 to $1,400 by filing well ahead of FRA, you won't start to get an extra $600 a month once FRA arrives.

In the context of the earnings-test limit, though, you don't have to worry about your Social Security benefits being reduced (or further reduced). Rather, you have to worry about them being withheld and paid back to you later on if you earn too much money. It's important to make this distinction.

It's also important to note that the earnings-test limit does not apply to workers who have reached FRA. Once you get to that age, you can earn any amount from a job without having to worry about withheld benefits. Rather, the earnings-test limit applies to workers who have not gotten to FRA.

Now, let's get into the numbers. The earnings-test limit for Social Security changes every year. But that limit hinges on your age.

If you're below FRA and will not be reaching FRA this year, the earnings-test limit for 2024 is $22,320. If your earnings exceed $22,320 this year, you'll have $1 in Social Security withheld per $2 of earnings. That withheld sum will then be added back into your monthly Social Security payments once you reach FRA.

If you're below FRA and you will be reaching FRA this year, the earnings-test limit is much higher at $59,520. From there, you'll have $1 in Social Security withheld per $3 of earnings. And again, those withheld benefits are returned to you eventually at FRA -- this is not a further reduction.

Still confused? Let's say you were born in 1958. In that case, FRA for you is 66 and eight months. You may not be at FRA right now. But it could be that you'll reach FRA later on in 2024. So in that case, if you're currently working and getting Social Security, the earnings-test limit you'd be subject to is $59,520.

Should you claim Social Security if you're still working?

You might assume that if you're going to continue working, there's no sense in claiming Social Security ahead of FRA -- especially since doing so means facing an automatic reduction in benefits. However, for some people, the combination of Social Security and part-time work can allow for an early retirement.

As such, it's not necessarily a bad idea to work and collect Social Security simultaneously. Just be aware of the earnings-test limits and rules if you opt to go this route.