How much am I able to earn from an employer if I opt to take my Social Security at age 62 next year?
– Glenn
To be very clear, you can earn as much money as you want while collecting Social Security benefits. The issue that most people are concerned with is having their benefits reduced for earning more than the annual earnings limit.
In 2023, you can earn up to $21,240 without seeing any reduction in your Social Security benefit. However, there are some important things to keep in mind when claiming Social Security before you reach full retirement age. (And if you need more help planning for Social Security, consider working with a financial advisor)
Social Security Earnings Limit
If you claim your benefit before hitting your full retirement age, you’ll be subject to the earnings limit. The specific amount adjusts each year, but for 2023 it’s $21,240.
If you earn more than that amount, your monthly benefit is reduced by $1 for every $2 you earn above the limit. So, if you earn $21,242, your monthly Social Security check would be $1 less than it would be otherwise. Earning less than that limit won’t affect your benefits at all.
However, things change a little bit in the calendar year in which you’ll reach your full retirement age. For people who hit their full retirement age in 2023, the earnings limit increases to $56,520. On top of that, your benefits are only reduced by $1 for every $3 you earn above the limit. (And if you need more help navigating the complexities of Social Security planning, this tool can help match you with potential advisors.)
Here’s what you should know about the earnings limit:
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The limit only applies if you claim Social Security before reaching your full retirement age.
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The earnings limit increases (to $56,520 in 2023) for the calendar year in which you’ll reach full retirement age.
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Starting in the month you hit your full retirement age, there is no longer an earnings limit. Your benefits will no longer be reduced regardless of how much income you have.
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The earnings limit specifically applies to earnings from wages or self-employment. Your pension, annuities and investment income do not count toward it.
Special Rule for Your First Year of Retirement
What happens if you retire mid-year and have already exceeded the earnings limit? There’s a special rule you’ll want to keep in mind for your first year of retirement, assuming you claim your benefits before reaching full retirement age.
Suppose you’re 62 and you retire after working a portion of the year, say in August, and you’ve already earned $45,000. Despite exceeding the annual limit by $23,760, your Social Security benefit won’t be reduced as long as any additional monthly earnings are less than or equal to 1/12th the 2023 earnings limit.
In other words, you’ll receive your full payment each month assuming you don’t make more than $1,770 that month. (And if you need more help planning for Social Security, talk to a finanical advisor.)
The Reduction Is Temporary, and You Get it Back
It’s worth noting that the earnings limit reduction is temporary and you end up getting that money back over time. When you reach full retirement age, your benefit increases (although not right away) to account for the reduction you had due to the earnings limit.
Don’t confuse the early filing reduction with the earnings limit reduction. Claiming Social Security early will result in a permanent reduction in benefits compared to waiting until your full retirement age. (And if you need picking the right time to claim Social Security, consider working with a financial advisor.)
Next Steps
Remember that your highest 35 years of earnings determine your benefit amount. If you continue to work while receiving your Social Security payments you may be increasing your benefit. If you are earning more than any of your previous highest 35 years then your primary insurance amount will increase.
Tips for Finding a Financial Advisor
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Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.
Brandon Renfro, CFP® is a SmartAsset financial planning columnist and answers reader questions on personal finance topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.
Please note that Brandon is not a participant in the SmartAdvisor Match platform.
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