Early application and reduced benefits
Applying for Social Security benefits before reaching full retirement age results in reduced benefits. The reduction depends on how early you apply, with percentages ranging from 70% to 100% of the full benefit, based on age.
Earnings limitations before full retirement age
There’s an annual earnings limit if you claim Social Security benefits before full retirement age, which is between 66 and 67 years old. In 2024, the limit is set at $22,320 for the year, increasing to $59,520 in the year you reach full retirement age. Exceeding these limits can affect your eligibility for full benefits.
Impact of wages and other incomes
The earnings limitation applies to W-2 wages and self-employment income but not to other income types like interest, dividends, or rental income. Special payments received after retirement, like bonuses or severance pay, are also considered.
Consequences of exceeding the earnings limit
If your income exceeds the limit, Social Security withholds $1 for every $2 over. However, it’s important to note that these benefits aren’t lost but withheld and recalculated into higher future benefits.
The monthly earnings test
This test is an alternative way to calculate earnings limits, often used by recent retirees, and can only be applied once.
Misconceptions about earnings limitations
Many believe exceeding the earnings limit means losing Social Security benefits. In reality, these benefits are withheld and later redistributed, ensuring you receive the intended amount over time.
Importance of strategic planning
Given the complexities of early Social Security benefits and earnings limitations, careful planning is essential. Making the wrong decision can result in permanently reduced benefits.
Conclusion and next steps
Navigating early Social Security benefits and understanding earnings limitations can be complex. For personalized advice and strategic planning, consider consulting with a financial advisor. Reach out to a Signet advisor today for expert guidance tailored to your retirement goals.