It’s surprising how many individuals automatically input either 62, 66, or 67 as their intended retirement age when sketching out their retirement plan. Upon further exploration, it often turns out that this choice stems from the ages highlighted on the Social Security statements they receive in the mail. However, these figures merely indicate minimum and maximum benefits, along with what’s termed as the primary insurance amount.
The minimum age for all Americans to claim Social Security benefits is 62. Surviving spouses or ex-spouses can begin claiming benefits at age 60 if eligible, albeit with substantial penalties. Social Security reduces benefits by a certain percentage each month; while the exact calculation is intricate and beyond the scope of this article, to simplify, claiming at 62 typically results in about 70% of the benefits you would receive at age 67.
At what age can you start receiving Social Security benefits?
The primary reason to refrain from collecting Social Security while still employed is the Social Security earnings limit. This limit represents an income threshold beyond which Social Security starts withholding your benefits. For instance, if you reach age 62 in 2024, the Social Security Administration will withhold $1 in benefits for every $2 in earnings exceeding an annual income of $22,320.
To put it simply, if you’re entitled to $2,000 per month at age 62 and earn more than $70,000 annually, your entire benefit will be withheld. It’s important to note that this isn’t Social Security simply taking your money; rather, the agency recalculates your benefits. To oversimplify, if this withholding occurs every year until age 67, you’ll receive roughly the same amount you would have received had you waited to claim your benefits. Essentially, claiming benefits under these circumstances becomes a futile exercise.
As you approach your full retirement age (FRA), which varies depending on your birth year, the earnings limit increases to $59,520 annually in the months leading up to your birthday. Notably, the Senior Citizens’ Freedom to Work Act, enacted in 2000, eliminated the earnings cap once you reach your FRA. Therefore, if you continue working until age 70 but decide to claim your benefits at age 67, you won’t face penalties for earning above the limit.
Opting to claim Social Security benefits early may indeed be the appropriate decision in certain circumstances
Factors such as declining health, a lower benefit amount for a couple, or an urgent need for income may make early claiming advantageous. However, it’s crucial to be aware that if you continue working, Social Security is likely to withhold benefits. Unfortunately, if there are oversights on their part, they won’t assume responsibility but will instead send you a bill.
This decision should be part of a comprehensive plan that considers all sources of income, investments, taxes, and, most importantly, your personal goals. It shouldn’t be influenced by hearsay, such as rumors about the instability of Social Security, but rather guided by a thoughtful assessment of your individual financial situation.