I’m 64 years old and considering claiming Social Security before I retire – how will that impact my tax withholding?
One of the toughest financial decisions you might make in your lifetime is choosing an age to start collecting Social Security. You can sign up for benefits at any time once you reach age 62. But if you don't wait…
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Choosing when to start collecting Social Security ranks among the most consequential financial decisions of a person’s life. You can sign up for benefits at any time after you turn 62, but claiming before your full retirement age (FRA) carries real costs. For anyone born in 1960 or later, FRA is 67, and filing even a few years early locks in a permanently reduced monthly check.
A 64-year-old reader recently sent in a question that captures the tension many pre-retirees face. They want to claim benefits now, while still working, to put that extra money toward paying off their mortgage. The idea is that arriving at retirement debt-free will make day-to-day expenses more manageable. It is a reasonable instinct, but the math deserves a hard look before they sign anything.
Collecting Social Security while continuing to work can sharply reduce those monthly payments, sometimes to a fraction of what the worker expected.
The problem with claiming Social Security early and working
Once you reach FRA, you can earn any amount from a job without the Social Security Administration withholding a single dollar from your monthly checks. Claim before FRA, though, and you become subject to an earnings-test limit that the SSA adjusts each year. Exceed that limit and the agency starts trimming your benefits.
In 2026, the earnings-test limit for workers who are under FRA all year is $24,480. For every $2 earned above that threshold, $1 in Social Security benefits is withheld. Workers who will reach FRA during 2026 face a much more generous limit of $65,160, with only $1 withheld per $3 earned above it. Because our reader is 64 and will not hit FRA until age 67, they fall squarely under the stricter $24,480 ceiling.
A salary that comfortably clears $24,480 could see Social Security payments reduced to nearly zero. The SSA does not treat that withheld money as gone forever: once you reach FRA, the agency recalculates your benefit upward to credit you for the months it held back payments, so you do eventually recover those funds through larger checks. Still, leaning on that future credit as a reason to file early misses a critical point. The reader was hoping to use Social Security income now, to pay off debt before retirement. If the earnings test swallows most of those payments, the mortgage-payoff strategy falls apart.
Setting the earnings test aside for a moment, there is also the matter of the mortgage itself. Carrying a moderate balance into retirement is not necessarily a crisis. If the interest rate is low, continuing to make regular payments while keeping cash available elsewhere can actually be the more flexible approach, and for those who still itemize deductions, the mortgage interest deduction may provide some offset.
The deeper issue is the permanent reduction that comes with early filing. A person whose FRA is 67 who claims at 64 locks in a benefit cut of roughly 20% for life. That smaller base compounds over decades of retirement and can create a real income shortfall in later years, when expenses tied to healthcare or assisted living tend to rise. Accepting both an early-filing reduction and an earnings-test reduction simultaneously means collecting a check that is a fraction of what the worker actually earned.
The tax picture makes things even more complicated
This reader is clearly thinking ahead and trying to set themselves up for a more affordable retirement. The goal of eliminating a mortgage payment before leaving work is sensible. But the path chosen to get there could produce the opposite result: a permanently shrunken Social Security benefit that leaves less income available precisely when it is needed most.
There is also the tax dimension to consider. The reader is accustomed to seeing withholding come out of each paycheck automatically. Social Security income works differently. If combined income (adjusted gross income, plus tax-exempt interest, plus half of Social Security benefits) exceeds $25,000 for a single filer or $32,000 for a married couple filing jointly, up to 50% of benefits can become federally taxable. Above $34,000 for singles or $44,000 for joint filers, up to 85% of benefits may be taxed at ordinary income rates. Worth noting: Congress has never inflation-adjusted those thresholds since setting them decades ago, which means a growing share of retirees cross into taxable territory each year even without any change in their other income. For someone still working, wages alone will likely push combined income past those thresholds. The resulting tax bite, stacked on top of the earnings-test reduction and the early-filing reduction, could leave the reader with far less spendable income than they anticipated.
One recent development is worth keeping in mind. The One Big Beautiful Bill Act, signed into law on July 4, 2025, created a temporary $6,000 additional federal deduction for taxpayers aged 65 and older. Both spouses can claim it if both qualify, making the combined benefit $12,000 for an eligible married couple. The deduction is available regardless of whether the taxpayer itemizes or takes the standard deduction, and it runs from tax years 2025 through 2028. It phases out at a rate of 6% of income above $75,000 for single filers and above $150,000 for joint filers. At 64, the reader does not yet qualify, but the benefit becomes relevant in the year they turn 65.
Given all of this, the stronger move is to hold off on filing, or at least to sit down with a financial advisor and model the scenarios carefully before committing. Paying off a mortgage three years early is a worthy goal. Doing so by permanently reducing a lifetime income stream, and then paying taxes on whatever benefits survive the earnings test, is unlikely to come out ahead.
Editor’s note: This article has been updated to include the specific income phase-out thresholds for the One Big Beautiful Bill Act’s $6,000 senior deduction ($75,000 for single filers, $150,000 for joint filers), to clarify that the deduction is available to both itemizers and standard-deduction filers, and to add context that the Social Security benefit-taxation thresholds have not been inflation-adjusted since Congress set them decades ago.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
