Financial Literacy

It depends on the year you were born and how long until you reach full retirement age, abbreviated as FRA. That's the age at which you would collect 100 percent of the monthly benefit payment Social Security calculates from your lifetime earnings history.

Retirement benefits are designed so that you get the full benefit if you wait until full retirement age, now 66 and gradually rising to 67 over the next several years. If you file early, Social Security reduces the monthly payment by 5/9 of 1 percent for each month before full retirement age, up to 36 months, and 5/12 of 1 percent for each additional month.

Suppose you will turn 62, the earliest age to claim retirement benefits, in 2020. For people born in 1958, full retirement age is 66 years 8 months.
Filing at 62, 56 months early, permanently reduces your monthly benefit by 28.3 percent. If you would have been entitled to $1,000 a month at full retirement age, you will get about $716 if you start benefits when you turn 62.
Your income might reduce the amount of your benefit if you start receiving Social Security before you reach full retirement age (FRA), the age when you qualify to collect 100 percent of the maximum benefit allowed from your earnings history.

Until then, Social Security doesn’t consider you fully “retired” if you make more than a certain amount from work, and it will deduct a portion of your benefits if your earnings exceed that limit. Once you reach FRA, there is no cap on how much you can earn and still receive your full Social Security benefit.

The earnings limits are adjusted annually for national wage trends. In 2020, you lose $1 in benefits for every $2 earned over $18,240. If you have a part-time job that pays $25,000 a year — $6,760 over the limit — Social Security will deduct $3,380 in benefits.

Suppose you reach full retirement age this year. In that case, the earnings limit is $48,600, with $1 in benefits withheld for every $3 earned over the limit. That applies until you actually hit your FRA; past that, there is no earnings limit.

If you’re self-employed, Social Security counts your net income only; if you receive wages, earnings-limit calculations are based on your gross pay. The Social Security pamphlet “How Work Affects Your Benefits” and its Retirement Earnings Test Calculator can provide more details.

Keep in mind
• The earnings cap applies only to income from work. It does not count investments, pensions, annuities or capital gains.
• If your Social Security payments are reduced because you earned income above the limit, spouses and children receiving benefits on your work record will have their payments reduced as well.
• The earnings cap and rules also apply to the work income of people receiving spousal, children's and survivor benefits.
• Benefits you lose by working before you reach full retirement age can be recouped later: When you reach FRA, Social Security increases your monthly benefit to account for the prior withholding.
• Other types of income including pensions, 401(k) plan and IRA withdrawals, severance payments, dividends and interest, and workers compensation are not included in the earnings limitation