Early retirees could be helped at least a little by a Social Security change going into effect next year.
Thinking about receiving Social Security retirement benefits at age 62? You’re not alone. Nearly one in three Americans did so in 2021, according to the latest data analyzed by the Congressional Research Service.
There could soon be a greater motivation for some to file for retirement benefits early. Here’s why claiming Social Security at age 62 will be a more attractive option in 2024 than it’s been in the past.
The downsides of collecting Social Security at 62
There are a couple of major downsides associated with collecting Social Security retirement benefits at age 62. The biggest is the steep financial penalty.
Your Social Security benefits will be reduced by five-ninths of 1% for each month you receive benefits before your full retirement age (FRA). That penalty, though, is only for the first 36 months prior to your FRA. If you begin collecting benefits earlier than that, you’ll be penalized an additional five-twelfths of 1%. For anyone with a FRA of 67, starting to receive benefits at age 62 will reduce your monthly payment by 30%.
One way to make up for the money you’ll lose by beginning to collect retirement benefits at 62 is to continue working some. However, there’s a potential issue with this approach too. If you make too much, your benefits will also be reduced.
The Social Security Administration (SSA) will deduct $1 from your retirement benefits for every $2 you earn above a specified threshold if you begin receiving benefits before your FRA. During the year you reach your FRA, this deduction changes to $1 for every $3 above a different threshold. After you attain your FRA, the SSA won’t deduct anything from your earnings anymore.
The good news is that you’ll eventually get the deducted amounts back after you reach your FRA. The bad news is that you could go for several years making less than you’d like because of this regulation.
Keeping more in ’24
These two downsides will still be in effect in 2024. However, one of them will be less problematic than it’s been in the past.
If you decide to begin collecting Social Security retirement benefits at 62 yet continue working, you’ll be able to keep more of your earnings. The earnings limit for the $1 for every $2 deduction will increase from $21,240 in 2023 to $22,320 in 2024.
As previously mentioned, there’s a different earnings limit for the year in which you reach your FRA. If you attain that age in 2024, the threshold will be $59,520, compared to $56,520 in 2023.
Granted, these increases might not seem all that significant. However, the early retirement earnings limits are higher than they’ve ever been.
It still pays to wait
Different people have different reasons for wanting to collect Social Security retirement benefits at 62. For most individuals, though, it still pays to wait at least until your FRA.
Actually, holding off on receiving Social Security benefits until age 70 is the most financially advantageous option for the vast majority of Americans. An analysis conducted last year by the National Bureau of Economic Research found that more than 90% of individuals would receive greater lifetime benefits by waiting until 70.
However, the negatives for claiming retirement benefits early won’t be quite as painful next year as they’ve been in the past. The increased earnings limits just might be enough to tip the scales for some individuals who are considering collecting Social Security benefits at age 62.
