Here’s Some Good News for Early Social Security Filers

You’ll often hear that claiming Social Security early is a big mistake. The reason? You’ll lock in a lower monthly benefit for life.

You’re entitled to your full monthly Social Security benefit at full retirement age (FRA), which is either 66, 67, or 66 and a certain number of months, depending on the year in which you were born. And that benefit is calculated based on your personal wage history. For each month you claim Social Security ahead of FRA, your monthly benefit gets reduced.

But some seniors opt to take Social Security before FRA since that’s a possibility beginning at age 62. Doing so means not only resigning yourself to a lower monthly benefit throughout retirement, but also potentially having benefits withheld if you’re still working.

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But next year, one major Social Security change will give early filers who are still working an opportunity to hang onto more of their benefits. At a time when inflation is soaring, that’s a good thing.

The earnings-test limit is rising

Once you reach FRA, you can earn as much money as you’d like without it impacting your monthly Social Security payments. But if you’re on Social Security while working and you haven’t yet reached FRA, you’ll risk having some of your benefits withheld if your income exceeds that-year’s earnings-test limit.

Right now, workers on Social Security who haven’t reached FRA can earn up to $19,560 without impacting those benefits. From there, $1 in Social Security is withheld for every $2 in earnings.

The rules are a little different for those working while on Social Security and reaching FRA this year. In that case, the earnings-test limit is much higher — $51,960. Beyond that point, $1 in Social Security is withheld per $3 in earnings.

Come 2023, the earnings-test limits are going up. If you’re an early Social Security filer who’s holding down a job, you’ll have the option to earn more money without affecting your benefits. The earnings-test limit for early filers not reaching FRA in 2023 is $21,240. From there, there’s that same risk of having $1 in Social Security withheld for every $2 of income.

If you’re reaching FRA in 2023, the earnings-test limit jumps up to $56,520. From there, it’s the same $1 in withheld benefits per $3 of earnings.

To be clear, withheld benefits under the earnings-test limit aren’t forfeited. Rather, that money gets added back into your benefits once you reach FRA.

But remember, claiming Social Security before FRA means locking in a lower monthly benefit for life. If you’re going to take that hit, you might as well collect all of that Social Security income or as much of it as possible. And thankfully, a higher earnings-test limit in the new year could make that happen.

Stay apprised of key changes

A higher earnings-test limit is only one of many Social Security changes coming down the pike in 2023. It pays to read up on those changes so you can see how your income might be affected.

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