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1 Little-Known Social Security Rule You Need to Learn Before Claiming Benefits Early

While common financial advice is to delay receiving Social Security benefits as long as possible, there are many good reasons and circumstances when it makes sense to claim your benefits early.

Most people become eligible for Social Security retirement benefits at age 62, even though they don’t reach full retirement age until around age 67. You probably know that if you file before your full retirement age, you’ll receive a smaller check each month. than when you claim later. Still, it may be worth it for some who have a lower than average life expectancy or who could get a significant increase in quality of life by claiming benefits as soon as possible.

But there are other restrictions placed on early retirees that you should be aware of. And not knowing this one rule can put a serious strain on your budgeting in your early to mid-60s.

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This rule can reduce your monthly Social Security check

If you continue to work while receiving Social Security benefits before you reach full retirement age, you are subject to the retirement income test.

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If your compensation from a regular job or self-employment exceeds a certain level in a given year, the Social Security Administration takes it upon itself to withhold a portion of your monthly Social Security benefits. There are two thresholds that early claimants need to know: one for the year they reach full retirement age and one for each year before that. The first is a higher threshold, because the SSA offers more flexibility to those waiting to claim at or near full retirement age.

For 2024, the two thresholds are $22,320 and $59,520.

For every $2 earned above the lower threshold, the SSA withholds $1 in benefits. The rules are more relaxed for those who retire fully. The SSA only withholds $1 in benefits for every $3 earned above the threshold. In addition, only income from the part of the year before reaching full retirement age counts towards the total.

The threshold for early retirement is very low. Anyone with more than one part-time job is likely to be deprived of some benefits.

But there is good news

Notice that I said the SSA “withholds” some benefits. In other words, the money is not lost forever.

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Once you reach full retirement age, the SSA will adjust your benefits as if you had deferred claiming Social Security for the number of months equal to your withheld benefits.

Let’s say you start claiming Social Security at age 62 and start collecting a monthly check. However, your earnings are so high each year that the Social Security Administration withholds half of your monthly benefits because of the means test.

When you reach full retirement age at age 67, the SSA will adjust your benefits as if you had not claimed anything until age 64 and six months, because in the five years starting at age 62 you will earn the equivalent of two and a half years of checks missed. to 67.

That increases your monthly benefit by approximately 19%. Furthermore, you can keep the full amount regardless of your income, as those who have reached full retirement age are not subject to the means test.

The retirement income test ensures that Social Security claims are somewhat self-regulating. In other words, if you file early and go back to work and earn a good salary, this can be a way to delay benefits if you don’t really need them. This can work out to your advantage in the longer term.

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And if you’re still working at age 67 and have no plans to stop and find that you no longer need Social Security to supplement your income, you can suspend your payments until age 70 and your check even more to increase.

Social Security is a more flexible program than many think. It can be helpful to claim benefits early, even if you’re still working, as long as you understand how the wage test will affect your benefits in the coming years.

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1 Little-Known Social Security Rule You Need to Learn Before Claiming Benefits Early was originally published by The Motley Fool

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