Skip to Content

Working May Reduce Social Security Benefits Received Before Full Retirement Age

Last Updated November 3, 2014

By Retirement Dictionary Staff

While you can claim your Social Security benefits as early as age 62, doing so could result in a reduction in your benefit amounts if you are still working. While this reduction would be applied only for benefits received before you reach your full retirement age, the level of reduction must still be considered as it may affect the amount you have available to cover your living expenses.

How Your ‘Full Retirement Age” is Determined

The first step towards determining if your Social Security benefits will be reduced is to determine whether they would be received before you reach your full retirement age. Full retirement age is not the same for everyone, and is determined by the year in which you were born. The following table, provided by the Social Security Administration, shows the full retirement age by year of birth.

Age To Receive Full Social Security Benefits
(Called "full retirement age" or "normal retirement age.")

Year of Birth*

Full Retirement Age

1937 or earlier

65

1938

65 and 2 months

1939

65 and 4 months

1940

65 and 6 months

1941

65 and 8 months

1942

65 and 10 months

1943--1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 and later

67

*If you were born on January 1st of any year you should refer to the previous year. (If you were born on the 1st of the month, we figure your benefit (and your full retirement age) as if your birthday was in the previous month.)

Source: Ssa.gov

 

How Much will be Deducted

The next step is to determine the amount that the Social Security Administration will deduct from your benefits. This can be determined by using the following guidelines, which are provided by the Social Security Administration. This considers your age, and whether you will reach full retirement age in the year that your Social Security benefits are paid.

Your Age While Working

Amount Social Security Administration will deduct from your Social Security Benefits

If you are under full retirement age for the entire year in which you receive Social Security benefits

$1 will be deducted from your Social Security benefit payments for every $2 you earn above the annual limit, which is $15,480 for 2014.

In the year you reach full retirement age

$1 will be deducted from your Social Security benefit payments for every $3 you earn above $41,400, However, the administration counts only earnings before the month in which you reach your full retirement age.  

Starting with the month you reach full retirement age.

No deductions from your benefits

 

The following table gives an idea of the amounts by which your benefits may be reduced.

If your monthly Social Security benefit is

And you earn

You will receive yearly benefits of

$700

$15,480 or less

$8,400

$700

$16,000

$8,140

$700

$20,000

$6,140

 

$900

$15,480 or less

$10,800

$900

$16,000

$10,540

$900

$20,000

$8,540

 

$1,100

$15,480 or less

$13,200

$1,100

$16,000

$12,940

$1,100

$20,000

$10,940

 

What Type of Income is Counted

For the purpose of determining whether your benefits should be reduced, only certain income is counted. The following are examples of earnings that are counted, and some that are not counted.

Social Security Earnings Limit

Earnings that are counted

Earnings that are not counted

  • Wages, salaries, and tips, when paid
  • Salary deferral contributions included in gross wages/salaries
  • Net earnings from self-employment, when received

 

  • Wages, salaries and tips earned but not yet paid
  • Net earnings from self-employment not yet received
  • Other government benefits
  • Investment earnings
  • Interest
  • Pensions
  • Annuities and
  • Capital gains

 

Reduction Does not Mean Lost Amounts

While your benefits maybe reduced for amounts received before your full retirement age, such reduction does not result in a permanent loss. This is because the Social Security Administration will increase the benefits that you receive when you reach your full retirement age, so as to make up for the amounts that they withheld before you reached full retirement age.

Exceptions Apply- Check With Your Financial Advisor

The explanation provided above is a high level overview of the rules, and exceptions apply in some cases. Further, you may be able to defer claiming Social Security benefits if you have other sources from which you can receive retirement income. Please contact your financial advisor for assitance with implementing a retirement income strategy that is suitable for you.