Picture this: You've waited decades to claim Social Security benefits and you're finally ready to sign up. Yet you feel as though you don't have enough saved and invested to allow you to completely quit the workforce and still live comfortably. So you decide to work and claim your benefit checks at the same time.
The program allows you to do this, but it might not be your best move. There are three key drawbacks to collecting Social Security while you're still working that you need to be aware of before you make that call.
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1. Benefit reduction for early claimers
If you file for Social Security before you reach your full retirement age (FRA) -- which will be 67 for most people still working today -- the size of those checks gets reduced by a fraction of a percent for every month early you file. Those fractions add up. Start taking benefits as soon as you're eligible -- at 62 -- and you'll be reducing your checks by 30%. This is true whether or not you're still working full time or part time when you start taking your benefits.
Accepting the trade-off of smaller checks, but more of them starting sooner, may be a necessary move for some seniors who may no longer be able to work and who have insufficient financial resources to fall back on. It's also sometimes the strategy that makes the most sense, particularly for people whose life expectancies are shorter than average. But if you have good reason to expect to live into your mid-80s or beyond and you can afford to keep working, claiming Social Security early may not be worth it over the long run.
Yes, you may be able to increase your quality of life a little since you'll be able to afford more than you could with either your income from your job or Social Security alone. But you'll be permanently locking yourself into smaller monthly benefits.
On the other hand, every month you delay filing for Social Security past your full retirement age boosts your checks by 0.67% per month (8% per year) until you hit 70. As a strategy, delaying Social Security will net people a larger overall lifetime benefit if they live longer than average. So it might make more sense for you to wait until you either turn 70 or retire to claim Social Security benefits.
2. Further losses for early claimers under the earnings test
The Social Security program has an earnings test: If you're working while claiming Social Security benefits and are still under your FRA, you can only earn so much from your job before the government begins withholding a portion of your benefits.
In 2025, for every $2 you earn over $23,400, your annual benefits will shrink by $1 -- if you'll be under your FRA all year. If you will reach your FRA in 2025, the earnings limit is $62,160, and you only lose $1 in benefits for every $3 you earn over that amount prior to when you reach your FRA.
Fortunately, these funds aren't lost to you forever. After you reach your FRA, not only do you become exempt from the earnings test, but the Social Security Administration recalculates your benefit and increases your checks to compensate for what it withheld before. But during the years that you are subject to the earnings test, it could take your entire check if your employment income is high enough.
This is another reason you may prefer to hold off until you reach your FRA or retire to sign up for benefits. You'll get fewer checks, but since each one will be larger, you could come away with a bigger lifetime benefit.
3. Increased risk for Social Security benefit taxes
Though President Donald Trump has vowed to eliminate taxes on Social Security, for now, the law that can subject some of your benefits to federal taxes remains on the books. You could owe ordinary income tax on up to 85% of your benefits depending on how much your provisional income is. This is your adjusted gross income (AGI), plus nontaxable interest you may have if you own municipal bonds, plus half your annual Social Security benefit.
Your AGI includes taxable retirement account withdrawals, like money from traditional IRAs and 401(k)s, as well as income you earn from a job. Not included are tax-exempt funds such as withdrawals from Roth IRAs. Continuing to work while claiming Social Security increases the likelihood that your provisional income will rise into the taxable range, meaning that some of your benefits would be subject to income taxes.
That said, it may still make sense for some working seniors to claim Social Security anyway. If you've reached your FRA, the first two issues mentioned above won't apply to you. And while you could owe some taxes on your Social Security benefits, the large majority of that money will remain with you to improve your quality of life.
If you haven't applied for benefits yet, it's worth weighing the issues above to see if they change your mind about your timing. You can always put off your Social Security application for a little while if you're afraid you'll cost yourself money by claiming early.
