Early Retirement Dilemma: To Work or Not to Work While Collecting Social Security?
Collecting Social Security
Many people wonder if they can draw Social Security at 62 and still work full time.
The answer is yes, but there are some important factors to consider before making this decision.
Social Security Benefits Explained
First of all, you need to understand how your Social Security benefits are calculated.
Your benefits are based on your average earnings over your 35 highest-earning years, adjusted for inflation.
The more you earn, the higher your benefits will be. However, if you start collecting benefits before your full retirement age (FRA), which is 66 or 67, depending on your birth year, your benefits will be reduced by a certain percentage for every month you claim early.
For example, if your FRA is 66 and you start collecting benefits at 62, your benefits will be reduced by 25%.
If your FRA is 67 and you start collecting benefits at 62, your benefits will be reduced by 30%.
Earnings Test
Secondly, you need to be aware of the earnings test. This rule applies to people who collect Collecting Social Security before their FRA and continue to work.
The earnings test limits how much you can earn without affecting your benefits. For 2023, the limit is $21,240 per year if you are under FRA for the entire year and $56,520 per year if you reach FRA in 2023.
If you earn more than these limits, the Social Security Administration (SSA) will withhold $1 of your benefits for every $2 or $3 you earn above the limit, depending on your age.
The good news is that these withheld benefits are not lost forever.
They will be added back to your monthly benefit amount when you reach FRA, resulting in a higher benefit for the rest of your life.
Tax Implications
Thirdly, you need to consider the tax implications of working and collecting Social Security at the same time.
Depending on your income level and filing status, up to 85% of your Social Security benefits may be subject to federal income tax. In addition, some states may also tax your Social Security benefits.
You may want to adjust your withholding or make estimated tax payments throughout the year to avoid a surprise tax bill.
Weighing the Benefits
Finally, you need to weigh the pros and cons of working and collecting Social Security at 62 versus waiting until later.
Working and collecting Social Security at 62 may provide you extra income and financial security in the short term.
Still, it may also reduce your lifetime benefits and increase your tax liability in the long term.
Waiting until later may increase your monthly benefit amount and lower your tax burden, but it may also require you to delay retirement or use other sources of income until then.
The bottom line is that there is no one-size-fits-all answer to whether you should draw at 62 and still work full time.
It depends on your personal situation, goals, and preferences.
You should consult a financial planner or a representative to help you make an informed decision that suits your needs.
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Category: Social Security
