Social Security is a pretty flexible program in that recipients get a choice as to when to claim benefits. You're allowed to sign up for those monthly payments at any age starting at 62.
Social Security also allows you to claim benefits while you're working and earning income from a job. But does it pay to collect Social Security if you have work-related income at your disposal? The answer is, it depends.
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Why it could pay to claim Social Security even if you have a job
Many people opt to ease their way into retirement rather than quit their jobs cold turkey and stop working completely. Often, older workers will transition into part-time roles for a year or two before retiring in full. And at a time like that when you're not earning a full salary, you may need extra income to supplement your wages. You also may not be ready to start tapping your nest egg. That's where Social Security could help.
Let's say you're used to earning $80,000 a year, but you decide to scale down to part-time hours in your 60s, reducing your salary to $40,000 in the process. That $40,000 may not be enough to cover your bills in full. So extra money from Social Security could help bridge that gap.
Be mindful of the earnings-test limit
If you've reached full retirement age (FRA) for Social Security, then you can earn any amount of money from a job without it impacting your benefits in a negative way. But if you decide to work and collect Social Security prior to reaching FRA, you'll be subject to an earnings-test limit. And wages paid to you beyond that limit could result in some benefits being withheld.
The earnings-test limit for Social Security changes every year. In 2024, you can earn up to $22,320 without risking withheld benefits. From there, you'll have $1 in Social Security withheld per $2 of earnings.
That $22,320 limit, however, only applies if you have not yet reached FRA and also will not be reaching FRA this year. If you will be reaching FRA this year, that limit increases to $59,520. And from there, you'll have $1 in Social Security withheld per $3 of earnings.
Now you should know that withheld Social Security benefits aren't lost forever. You'll get that money paid to you once FRA arrives.
But remember, claiming Social Security ahead of FRA will result in permanently reduced monthly benefits. And even once FRA arrives, you can boost your monthly payments by delaying your filing up until age 70.
So while it may be a good idea to collect Social Security while working, it also could be a wise choice to hold off on filing for benefits if your paycheck can sustain you on its own. And if you decide to transition to part-time work ahead of retirement, it could make more financial sense to tap your nest egg modestly rather than file for Social Security early and reduce those monthly benefits for life in the process.
