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 is one of the most consequential financial decisions a person can make. Benefits are available as early as age 62, but claiming before full retirement age (FRA) carries real, lasting 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 for the rest of your life.
A 64-year-old reader recently posed a question that captures the tension many pre-retirees face. They want to claim benefits now, while still working, and direct that extra income toward paying off a mortgage. The logic is that arriving at retirement debt-free will make monthly expenses easier to manage. It is a reasonable instinct. But the math deserves careful examination before signing anything.
Collecting Social Security while continuing to work can sharply reduce those monthly payments, sometimes to a fraction of what the worker had 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 remain under FRA for the entire year is $24,480. For every $2 earned above that threshold, $1 in Social Security benefits is withheld. Workers who will reach FRA at some point during 2026 face a much more generous ceiling of $65,160, with only $1 withheld for every $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 cap. For planning purposes, it is worth noting that the 2027 limit for those under FRA all year has already been announced at $25,560, a modest increase that still leaves most working adults well below their likely earnings.
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 permanently gone: once you reach FRA, the agency recalculates your benefit upward to credit you for the months it withheld payments, so those funds are eventually recovered through larger checks. Even so, leaning on that future credit as a justification for filing early misses the point for this reader. They want to use Social Security income now to retire their mortgage. If the earnings test absorbs most of those payments, the payoff strategy collapses before it starts.
The mortgage question also deserves a separate look. Carrying a moderate balance into retirement is not necessarily a financial emergency. When the interest rate is low, continuing to make regular payments while preserving cash flexibility can be the more sensible path. For households that still itemize deductions, the mortgage interest deduction offers some additional offset, though the standard deduction’s current size means fewer filers itemize than in past decades.
The deeper and more lasting concern is the permanent benefit cut that comes with early filing. Someone whose FRA is 67 who claims at 64 locks in a reduction of roughly 20% for life. That smaller monthly base compounds across decades of retirement, and the shortfall becomes most acute in later years when costs tied to healthcare and assisted living tend to surge. Stacking an early-filing reduction on top of an earnings-test reduction means accepting a check that represents only a fraction of what the worker actually earned over a lifetime.
The tax picture adds another layer of complexity
This reader is clearly thinking ahead, and the goal of eliminating a mortgage payment before leaving the workforce is sensible. The problem is that the chosen strategy could produce the opposite result: a permanently shrunken Social Security benefit that delivers less income precisely when the need is greatest.
There is also the tax dimension. Workers are accustomed to withholding coming out of each paycheck automatically. Social Security income works differently, and many retirees are surprised to learn that a portion of their benefits can be federally taxable. The IRS uses a measure called combined income (adjusted gross income, plus tax-exempt interest, plus half of Social Security benefits) to determine exposure. For a single filer, combined income above $25,000 can make up to 50% of benefits taxable. Above $34,000, up to 85% of benefits may be taxed at ordinary income rates. For married couples filing jointly, those thresholds are $32,000 and $44,000, respectively.
One critical detail: Congress has never adjusted those thresholds for inflation. The single-filer limits have been fixed in statute since 1983, and the joint-filer limits since 1993. Every year of rising wages and Social Security cost-of-living adjustments pulls a larger share of ordinary recipients into taxable territory, even without any change in their other income. For someone still working and earning a full salary, wages alone will likely push combined income well past those thresholds. The resulting federal tax bite, stacked on top of an earnings-test reduction and an 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 filing jointly. The deduction is available regardless of whether the taxpayer itemizes or takes the standard deduction, and it covers tax years 2025 through 2028. It phases out at 6% of income above $75,000 for single filers and above $150,000 for joint filers. At 64, this reader does not yet qualify, but the benefit becomes available in the year they turn 65 and could meaningfully reduce taxable income on Social Security and wages alike.
Given all of this, the stronger course of action is to delay filing, or at minimum, to model both scenarios carefully with a financial advisor before committing. Paying off a mortgage three years early is a worthy goal. Pursuing it by permanently shrinking a lifetime income stream, and then paying taxes on whatever benefits survive the earnings test, is unlikely to come out ahead on net.
Editor’s note: This article has been updated to include the announced 2027 earnings-test limit of $25,560 for workers under full retirement age all year, and to add historical context that the Social Security benefit-taxation thresholds for single filers have been fixed since 1983 and for joint filers since 1993.
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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, The Washington Post, 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.
