ammed:Modifying Post-62 Employment and Its Impact on Social Security Allowances
Get the scoop on Social Security's retirement benefits and how they're affected by working past age 62, even if you're still earning a living.
Many people get confused about this topic, potentially leading to incorrect decisions or misconceptions about their benefits amounts.
You can claim Social Security retirement benefits starting at 62, regardless if you're employed or not. These benefits increase each month you delay claiming, up to age 70, but there are no increases if you delay after age 70.
However, you don't actually have to retire to claim these retirement benefits. You can keep working and collecting your benefits.
Working can even enhance your benefits, whether you're already receiving them or not. It's crucial to understand how this can impact your benefits, as this factor might sway your choices.
Social Security benefits are calculated based on your 35 highest-earning years, indexed for inflation to reflect todays earnings. If you don't have 35 years of earnings, the missing years are assigned a zero income value.
Only income up to the Social Security maximum wage base for the year is considered when calculating benefits. Excess income has no effect on benefits.
Now, let's dive into the specifics of how working past 62 affects your benefits:
Working Past 62 and Before Full Retirement Age
If you continue working after claiming retirement benefits before reaching full retirement age (FRA), there are earnings limits you should be aware of. These limits can result in benefit reductions.
The earnings limit differs for those in the year they reach FRA:
- Annual limit (before FRA): Up to $23,400 in 2025 earnings won't affect your benefits. For every $2 earned above the limit, your benefits are reduced by $1.
- Year you reach FRA: Your limit increases to $62,160. For every $3 earned above the limit, your benefits are reduced by $1 until the month you reach FRA.
Exceeding these limits results in a temporary reduction of benefits. This is because excess earnings are basically deferred or held back, allowing them to potentially increase your lifetime earnings average and, in turn, your future benefits.
For a more precise calculation of potential reductions or increases, you can use Social Security's Retirement Earnings Test Calculator or consult with a financial advisor.
Working Past 62 and Beyond Full Retirement Age
After you reach FRA, there's no earnings limit, so benefits won't be reduced, no matter how much you earn while working.
Benefit Calculation
The calculations to determine your benefits, with respect to working past age 62 and before FRA, can be quite complex. In essence, they boil down to your total earnings and their impact on your 35 highest-earning years.
The Power of Working Longer
Research shows that working for a few additional years can noticeably impact your retirement benefits. A study titled "The Power of Working Longer" revealed that working for just an extra few months could have an equivalent impact on your retirement standard of living as saving an additional percentage point of earnings per year for three decades[1].
Regardless of the route you choose – work longer or save more – the goal is to build a more prosperous retirement. Understanding how Social Security benefits and working past age 62 interact is essential to achieving this goal.
[1] National Bureau of Economic Research. (2012, March). The Power of Working Longer. Retrieved from https://www.nber.org/papers/w18649
- If you're considering claiming social security retirement benefits after age 62 while still working, be aware of the earnings limit, as exceeding it can result in benefit reductions.
- Claiming social security retirement benefits after age 62 and before full retirement age (FRA) can lead to temporary reductions if your earnings exceed the set limit, but after reaching FRA, there's no earnings limit.
- Working past age 62 can potentially add credit to your social security record, as the higher earnings in your 35 highest-earning years are used to calculate your retirement benefits.
- There are misunderstandings surrounding the impact of working while claiming social security retirement benefits, and using a tool like Social Security's Retirement Earnings Test Calculator can help provide a clearer picture of potential reductions or increases.
