There are sound financial reasons for waiting to your full retirement age to claim Social Security retirement benefits. Delaying Social Security until age 70 can enhance those benefits even more. Nevertheless, many baby boomers will determine that they must or should begin receiving benefits at age 62. Unfortunately, many retirees also decide to stop working as soon as they begin receiving Social Security. This decision is often based on an incorrect understanding of how other income will affect your Social Security benefits overall.
Folks who claim Social Security retirement benefits at age 62 are often motivated by unhappiness with their job or with working in general. (Many baby boomers probably fall into that category right now!) The only reason they are working at all is for the income. When these retirees find out that they will lose a substantial amount of their Social Security benefit by continuing to work, they throw in the towel and stop working completely when they begin receiving Social Security.
The problem is that many retirees do not realize that the benefits they lose by working before their full retirement age are re-captured after you reach full retirement age. In other words, if you lose $100/month for 12 months in Social Security retirement benefits from income earned before you reach full retirement age, what you lost will be added to your benefit after you reach full retirement age.
The Social Security Administration apparently does not go out of its way to explain this benefit recapture provision to those who claim benefits at age 62. But the information is available. Here is a quote directly from the SSA website:
If some of your retirement benefits are withheld because of your earnings, your benefits will be increased starting at your full retirement age to take into account those months in which benefits were withheld.
As an example, let us say you claim retirement benefits upon turning 62 in 2007 and your payment is $750 per month. Then, you return to work and have 12 months of benefits withheld. We would recalculate your benefit at your full retirement age of 66 and pay you $800 a month (in today’s dollars). Or, maybe you earn so much between the ages of 62 and 66 that all benefits in those years are withheld. In that case, we would pay you $1,000 a month starting at age 66.
So you can see that although you can be penalized for working and receiving Social Security retirement benefits before your full retirement age, that penalty is not permanent. You will receive the lost benefits after you reach full retirement age. The only way you permanently lose out in total Social Security benefits received is if you die before all of the lost benefits are recaptured.
To evaluate how this benefit reduction and recapture may apply to your Social Security retirement benefits, you can review your annual Social Security statement or use the online retirement benefit estimator.
In summary, if you determine that claiming Social Security at age 62 is best for you, do not make the mistake of stopping work based on the false assumption that you will permanently forfeit benefits by having that other employment income. That is a myth that has caused other retirees to make poor decisions. If you can afford to quit working and want to leave the workforce at age 62 for lifestyle reasons, go ahead. Otherwise, consider keeping that paycheck coming in for as long as possible, knowing that the Social Security benefits that are taken from you before full retirement age will be returned to you later.
Photo credit: Miguel Ugalde