1 Little-Known Social Security Rule You Must Learn Before You Claim Benefits Early

Not knowing this one rule could reduce your monthly Social Security check.

While common financial advice is to delay taking Social Security benefits as long as possible, there are plenty of good reasons and circumstances in which it makes sense to claim your benefits early.

Most people become eligible for Social Security retirement benefits at age 62, even though they won’t reach full retirement age until around age 67. You probably know that if you claim before your full retirement age, you’ll receive a smaller check each month than if you claim later. Still, it can be worth it for some who have a lower-than-average life expectancy or who can get a significant boost in quality of life from claiming benefits as soon as possible.

But there are other restrictions imposed on early retirees that you need to know about. And if you don’t know this one rule, it could put a serious damper on your budgeting in your early to mid-60s.

This rule could reduce your monthly Social Security check

If you continue to work while collecting Social Security before reaching full retirement age, you’re subject to the retirement earnings test.

If your compensation from a regular job or self-employment exceeds a certain level in any given year, the Social Security Administration takes it upon itself to withhold some of your monthly Social Security benefits. There are two thresholds early claimers need to know, one for the year they reach full retirement age and one for every year before then. The former is a higher threshold, as the SSA gives more lenience to those waiting to claim at or near full retirement age.

For 2024, the two thresholds are $22,320 and $59,520.

For every $2 earned above the lower threshold, the SSA will withhold $1 in benefits. The rules are more lenient for those reaching full retirement. The SSA will withhold only $1 in benefits for every $3 earned above the threshold. In addition, only earnings from the part of the year before reaching full retirement age count toward the total.

The threshold for early retirees is very low. Anyone with more than a part-time job is likely to see some benefits withheld.

But there’s good news

Note that I said the SSA “withholds” some benefits. In other words, the money isn’t lost forever.

Once you reach full retirement age, the SSA adjusts your benefits as if you’d delayed claiming Social Security for the number of months equal to your withheld benefits.

For example, let’s say you claim Social Security at age 62 and start collecting a monthly check. However, your earnings are high enough every year such that the Social Security Administration withholds half of your monthly benefits because of the earnings test.

When you reach full retirement age at 67, the SSA will adjust your benefits as if you didn’t claim anything until age 64 and six months because you forewent the equivalent of two and a half years’ worth of checks in the five years from 62 to 67.

That’ll boost your monthly benefit by about 19%. What’s more, you’ll be able to keep the entire amount regardless of your earnings, since those past full retirement age aren’t subject to the earnings test.

The retirement earnings test makes Social Security claims somewhat self-regulating. In other words, if you claim early and go back to work and earn a good salary, it can be a way to delay benefits when you don’t really need them. That can work out in your favor in the long run.

And if you’re still working at 67 with no plans to quit and find you don’t need Social Security to supplement your income any longer, you can suspend your payments until age 70 and boost your check even more.

Social Security is a more flexible program than many give it credit for. It can work out to claim benefits early even if you’re still working as long as you understand how the earnings test will impact your benefits over the next few years.