If you're still working and wondering whether you can start collecting Social Security benefits, the answer is yes, but there are some important considerations to keep in mind. This article will provide insights into the rules and implications of receiving Social Security benefits while continuing to work.
Normal Retirement Age and Benefit Reduction
The normal retirement age (NRA) determines when you can receive full retirement benefits from Social Security. For most individuals today, the NRA is 67. However, you can start receiving benefits before reaching the NRA, but your benefit amount will be reduced.
Earning Limits and Benefit Reduction
If you decide to start receiving Social Security benefits before your NRA and continue working, your benefits will be subject to an earnings limit. In the years leading up to your NRA, your benefits will be reduced by $1 for every $2 you earn over the limit. As of 2016, the limit was $15,720.
In the year you reach your NRA, the reduction changes to $1 for every $3 you earn over a higher limit, which was $41,880 in 2016. However, once you reach your NRA, your benefits will no longer be reduced, regardless of your income.
Taxation of Social Security Benefits
It's important to note that social security benefits can be subject to taxation as income if your total income exceeds certain thresholds. The specific thresholds depend on your filing status. It's essential to consider the potential tax implications when deciding to start collecting benefits while still working.
Considerations for Decision Making
When considering whether to start collecting Social Security benefits while continuing to work, several factors come into play:
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Reduced Benefits: Starting to receive benefits before reaching your NRA will result in permanently reduced monthly benefits. The longer you can afford to wait (up to age 70), the larger your monthly benefit will be.
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Break-Even Analysis: Conducting a break-even analysis can help you determine when it would be financially advantageous to delay receiving benefits.
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Spousal Benefits: Spouses can also claim benefits based on their partner's work record as early as age 62. Considering spousal benefits can be crucial in the decision-making process.
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Tax Implications: Understanding the potential tax implications of receiving Social Security benefits while working is vital. Higher income levels can subject your benefits to taxation.
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Investment Opportunity and Health Coverage: Other factors to consider include investment opportunities, health coverage implications, and your expected longevity.
Maximizing Your Social Security Benefits
Delaying the collection of Social Security benefits until age 70 can result in higher monthly benefits, as you'll receive an additional 8% per year. However, it's essential to assess your financial situation, expected longevity, and eligibility for spousal benefits before making a decision.
Living without Social Security income until age 70 can ensure maximum payments for yourself and lock in the maximum spousal benefit. However, it's crucial to have sufficient alternative income sources to sustain your needs during this period.
When you're ready to apply for Social Security benefits, you can do so online, by phone, or at your local Social Security office. While it is possible to start collecting Social Security benefits while still working, careful consideration of various factors is necessary. Understanding the impact of reduced benefits, earnings limits, tax implications, and other relevant factors will help you make an informed decision about when to begin receiving your benefits. By assessing your unique financial situation and future plans, you can optimize your Social Security benefits and ensure financial stability in retirement.
Summary
Yes, you can start receiving social security benefits before you actually stop working, and your benefit amount will not be affected if you have attained normal retirement age, or NRA, which is determined based on the year of your birth. NRA is 67 for most people today.
If you start to take benefits while working and before the normal retirement age, your benefit will be reduced. But there are a few caveats to consider if you start to receive the benefits before your normal retirement age.
In the years before you reach your normal retirement age (NRA is determined by a table using the year of your birth), your benefits will be reduced by $1 for every $2 you earn over the limit, which is $15,720 in 2016.
The year in which you will reach your NRA, your benefits in the months leading up to your birth-month will be reduced by $1 for every $3 you make over the limit (which is currently $41,880). Starting the month, you reach your NRA, your benefits will no longer be reduced, regardless of your income.
Two things to consider in addition to the above: you will still have social security taxes withheld from your income while employed, regardless of age, and your social security benefits are subject to taxation as income over certain amounts which are different depending on how you’re filing.
It is possible that your earnings will be high enough, or will bring your total years of earning income up to the 35 considered, that you will see your benefits increased because of your current contributions. If you have not yet reached Normal Retirement Age, you must also consider that the 2:1 reduction may cause you to not receive any benefits at all in a given year. Only employment income is considered for this reduction calculation.
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