Claim Social Security at 62 While Still Working and You’re Hit Twice: A Permanently Smaller Check, Plus $1 Withheld for Every $2 Over the Earnings Limit
Filing for Social Security at 62 while still working triggers not one but two separate financial penalties, and most people only realize this after they have already locked in a decision they cannot undo.
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Claiming Social Security at 62 can seem like an appealing option. The sooner you start getting that money, the sooner you can start using it to improve your life.
But you should know that filing for Social Security at 62 could have two unfortunate consequences. And both could have a big impact on your retirement income.
Filing early reduces your benefits for life
While you can file for Social Security at any point once you turn 62, if you don’t wait until full retirement age (FRA) to claim benefits, your monthly checks will be reduced on a permanent basis. FRA kicks in at 67 for anyone born in 1960 or later.
If you have an FRA of 67 and you file for Social Security at 62, your monthly checks will face a roughly 30% reduction. That not only means less guaranteed monthly income for life, but it also means smaller cost-of-living adjustments (COLAs) each year.
Social Security COLAs are implemented on a percentage basis. This year, for example, benefits went up 2.8%.
But the smaller your benefits are to begin with, the less valuable each COLA is. And if you reduce your benefits by filing for Social Security at 62, you’ll end up with not just a smaller baseline payment, but also smaller raises from year to year.
Working could trigger another reduction if claim benefits early
The second problem with claiming Social Security at 62 is that if you continue to work, you’ll be subject to an earnings test. And making too much money could result in benefits being withheld.
Under the earnings test, the Social Security Administration (SSA) withholds $1 in benefits for every $2 earned above a certain limit which changes from year to year. This year, that limit is $24,480 for people who will not reach FRA by December 31.
Now that withholding is different from the permanent reduction caused by claiming early. The SSA will adjust your benefits at FRA if you have money withheld due to exceeding the earnings test. And over time, those withheld benefits should be repaid to you.
But the immediate impact of the earnings test could sting. Withheld benefits could affect your cash flow, making it harder to cover expenses.
Think twice before filing at 62
It’s easy to see why claiming benefits at 62 is enticing. But before you file for Social Security at 62, consider the double whammy of reduced monthly checks for life and potentially withheld benefits if you continue to work.
This doesn’t mean that filing for Social Security at 62 is a bad idea off the bat. But if you know you intend to keep working, you may want to hold off on claiming benefits in that particular situation.
It’s one thing to need the money if you’re planning to retire or are being forced to retire at 62. But if you’re still getting your regular paycheck, you probably don’t “need” Social Security so much as want it. And in that case, waiting could work to your advantage in more ways than one.
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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 CNN Underscored.
