How Working After 62 Can Change Your Social Security Benefits

In America today, not everyone waits until they hit their full retirement age to claim their Social Security benefits. In fact, most Americans claim their Social Security benefits at 62, when they first become eligible for Social Security, but before reaching full retirement age.


Whether or not claiming your Social Security benefit at 62 makes sense will vary depending on your personal financial situation. However, working after age 62 can impact your Social Security benefits, both for better and for worse. When deciding how you want to handle your Social Security benefits and employment at age 62 and beyond, you’ll want to keep this key information in mind:

Taking Social Security Before Full Retirement Age Incurs Penalties

If you take your Social Security benefits before your full retirement age (either 66 or 67, depending on your birthday), you will incur penalties. For example, if you take your Social Security benefits at 62 and your full retirement age is 66, you will incur a 25% reduction in your benefits. If your full retirement age is 67, you will incur an even larger reduction. 

Some argue that taking this reduction makes sense, because you’ll receive more checks over time (though with smaller amounts). However, if you believe you will live a long time, the reductions can amount to the equivalent of tens or hundreds of thousands of dollars lost. Be aware of these penalties when you’re considering when you start taking your Social Security benefit. You can get more information on this, including what your payments would be at each year between 62 and full retirement age on your Social Security statement. 

If you reach full retirement age and you’re still working, you can begin to take your Social Security benefit without incurring any penalty. Although you’ll likely still be paying tax on the Social Security benefit, you won’t have any penalty on your benefits coming in. 

The Earnings Cap

If you’re still working, you’re not at your full retirement age yet, and you’re already claiming Social Security, you will get hit with the aforementioned penalty, as well as an additional earnings cap. If you’re working, taking Social Security, and earning more than approximately $21,000 on an annual basis, you’ll be subjected to the earnings cap. The earnings cap means that you’ll have to give $1 for every $2 you make over that approximately $21,000 limit. 

In many cases, this penalty will whittle down your Social Security benefit so much that it’s hardly there at all. This earnings cap penalty will remain in place as long as you’re working, but once you stop working, you’ll get that money back incrementally, year to year, over your retirement. This means the earning cap withholds some of your earnings, in order to discourage you from taking Social Security benefits while you’re still making a decent wage. 

A few more watch outs on the earnings cap: if you’re over the earnings cap in your first year of receiving early Social Security benefits, they will make you pay back everything you received from the previous year. If you plan to claim early Social Security and continue working, you’ll want to be aware of this earnings cap so you can avoid getting hit with a big tax bill. 

Taxation of Social Security Benefits

When you’re looking at your Social Security statement, make sure you remember that it is taxable income. Up to 85% of your Social Security benefit is taxed at your tax bracket. Historically, the limits are extremely low for avoiding tax on income. Unless you’re bringing in less than $34,000, you’ll be paying tax on your Social Security benefits. At $44,000 or less, 50% of your Social Security benefits will be subjected to taxes. If you’re bringing in more than that $44,000, 85% of your Social Security benefits will be taxed. 

When you’re looking at your finances and your Social Security statements, remember to keep the tax implications in mind. You’re likely going to be paying taxes on that amount and paying Medicare as well. Keeping tax implications in mind can help you strategize to put yourself in the best possible situation, when taking your Social Security benefits. 

Why You May Want to Take Social Security Early

Over the years, we’ve seen many individuals and successful families who should take Social Security early, as early as 62 years old. If you have a net worth of 2 million dollars or more, with enough saved to retire between 60-62, you may want to consider taking your Social Security benefits early. Just think, if you wait until 70 take your Social Security benefits, you’ll have maxed out your Social Security benefits. But by that point, you’ll be very close to 73, when you’ll have to start taking your required minimum distributions. If you’ve saved a lot and have a high minimum distribution, you’ll be paying more tax on the larger Social Security benefits, which you deferred over the years. For some, it can make sense to take the benefits early to avoid that higher tax later. 

In conclusion, it’s all about timing and your situation! You want to look at your potential benefits in the context of your financial situation and see what works best for you. For some, taking Social Security benefits early could mean leaving thousands of dollars on the table. For others, taking Social Security benefits early could be the best way to maximize value and minimize the associated taxes. At REAP Financial, we can work with you to run a quick analysis that will show you if you’re a candidate to take Social Security early or not. The best part? This analysis only takes fifteen minutes! 

If you’re looking for even more information on navigating Social Security, check out our Social Security Decisions Guide. You can get your free copy by emailing! Reach out to our team today for your free guide, and let REAP Financial help you take charge of your financial future! 

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