I can’t tell you the number of people who plug 62, 66 or 67 into the first draft of their retirement plan as when they plan to retire. When I probe further, I confirm that it is because it aligns with one of the ages shown on the green Social Security statements that come in the mail. Those ages just show minimum benefits, maximum benefits and what is known as your primary insurance amount. The reality is that you can claim any time in between that minimum and maximum age.
My first piece of advice, assuming you have saved enough: Separate the retirement decision from the Social Security decision.
When can you collect?
The earliest Social Security claiming age for all Americans is 62. If you are a surviving spouse or a surviving ex-spouse, you can claim it as early as age 60, so long as you’re eligible. Both come with significant penalties. Social Security reduces benefits by a percentage every month. The actual calculation is beyond the scope of this article, but to simplify it, if you collect at 62, you get about 70% of what you would be entitled to at 67.
Here’s the major reason not to collect Social Security while you’re working: the Social Security earnings limit. This is essentially an income amount, beyond which Social Security will start to withhold your Social Security income. Let’s say you turn 62 in 2024: The Social Security Administration will withhold $1 in benefits for every $2 in earnings above an annual income of $22,320.
A lot of numbers there, but essentially, if you are entitled to $2,000 per month at 62 and earn over $70,000, you’ll have your entire benefit withheld. This is not Social Security just taking the money; the agency is simply recalculating your benefits. Once again, oversimplifying, if this happened every year until age 67, you’d get just about the same amount had you waited to claim your benefits. In other words, it’s a big waste of time to claim the benefits.
In the months leading up to your birthday of the year you hit full retirement age (FRA), that earnings limit goes up to $59,520. E.g. The Senior Citizens’ Freedom to Work Act, passed in 2000, eliminated the earnings cap once you actually hit FRA. So, if you continue to work all the way until 70 but turn on your benefits at age 67, you won’t be penalized.
Claiming early can be the right choice for you
There are scenarios, such as poor health, having the lower benefit amount in a couple and a pure need for the income, that make claiming Social Security early the right choice. However, if you do want to continue to work, you should know that Social Security is likely to withhold benefits. Unfortunately, if they miss it on their end, they will not accept blame and let you slide. Rather, they’ll send you a bill.
This decision should be part of a bigger plan that incorporates all sources of income, investments, taxes and, most important, your goals. It should not be driven by someone telling you at the watercooler that “Social Security is going broke.”
