If you're still holding down a job, it may not be worth it for you to file for Social Security. The reason? Depending on your age, you'll risk having a portion of your benefits withheld if your income exceeds a certain threshold. Furthermore, you have the option to hold off on claiming Social Security all the way until age 70, and the later in life you file, the higher your monthly benefit stands to be.
2020's earnings test limits
Whether or not you'll have a portion of your benefits withheld by working and receiving Social Security will depend on two factors: your age and your income.
First, let's talk age. If you've already reached full retirement age, or FRA, for Social Security purposes, you won't have to worry about losing out -- you can earn as much as you'd like and still collect your full monthly benefit. Here's what FRA looks like:
If You Were Born in This Year:
Your Full Retirement Age Is:
66 and 2 months
66 and 4 months
66 and 6 months
66 and 8 months
66 and 10 months
1960 or later
If you're younger than FRA, however, you'll need to keep what are known as the Social Security earnings test limits in mind. These limits dictate how much income you can bring in from a job before your benefits are impacted, and here’s what they look like:
If You’re This Old:
And Your Earnings Exceed This Level:
You’ll Have This Much in Benefits Withheld:
Under FRA, but not reaching FRA in 2020
$1 for every $2 you earn
Under FRA, but reaching FRA in 2020
$1 for every $3 you earn
At or beyond FRA
It doesn’t matter
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As you can see, you don’t get a lot of leeway for earning money and collecting Social Security when you’re not close to FRA. Once you bring in $18,240 of earned income, your benefits start getting withheld. That said, that Social Security income isn’t lost permanently. Rather, it’s added back into your benefits once you reach FRA.
Now you may be thinking that having benefits withheld for earning too much is no big deal. But consider this: While the Social Security income you have withheld will be given back to you later on, by claiming benefits before FRA, you’ll automatically reduce them in the process.
Though you’re allowed to file for benefits as early as age 62, you don’t get your full monthly benefit to begin with until you reach FRA. As such, if you’re making enough money at a job to exceed the thresholds allowed for by the earnings test, it could pay to hold off on filing for benefits to avoid that permanent reduction.
Here’s an example. Say you’re entitled to a full monthly benefit of $1,500 at an FRA of 67, but you decide to file at 62 instead. In doing so, you’ll reduce that benefit to $1,050. That has nothing to do with the earnings test -- it’s simply what will happen if you claim benefits early. Now, let’s say you earn $25,000 annually from a job. That means you’re $6,760 over the earnings test limit for your age, in which case you’ll have half that amount -- $3,380 -- in benefits withheld. You’ll get that $3,380 back eventually; but the $450 a month hit on benefits you face for filing early is permanent, and it’s imperative that you understand that difference.
Of course, in this example, a $25,000 annual salary may not be enough to live on, which explains why you’d take benefits at age 62 even with a job. But if that salary is, say, $40,000, holding off on claiming benefits becomes more feasible -- and it’s a move that could really pay off in the long run.
Even if you’ve already reached FRA, if you still have a job, waiting to file for benefits will boost them by 8% a year up until you turn 70 -- so while you won’t have to worry about the earnings test, it could still very much pay to hold off on claiming Social Security.
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