Social Security plays a crucial role in providing income for retirees, but it comes with certain regulations, most notably the earnings test. This rule can reduce your benefits if your work income exceeds a specific threshold before reaching your full retirement age (FRA).
If you’re considering claiming Social Security benefits at age 62 in 2023, it’s essential to understand how much you can earn without impacting your benefits and what happens if you exceed the limit.
Understanding the Earnings Test
The earnings test applies to Social Security recipients who are below their FRA and have income from work. Your FRA depends on your birth year; for those born in 1960 or later, it’s 67. Importantly, the earnings test doesn’t consider income from sources other than work, like pensions, investments, or other government benefits. It also doesn’t affect your benefits once you reach your FRA, regardless of your earnings.
Earning Limits for 2023
The Social Security Administration (SSA) adjusts the earnings test limit annually based on changes in the national average wage index. For 2023, the limit for beneficiaries under their FRA for the entire year is $21,240. If you’re 62 in 2023 and claim Social Security, you can earn up to this amount without reducing your benefits.
However, if you earn more than $21,240 in 2023, the SSA will withhold $1 from your benefits for every $2 earned above this limit. For example, earning $25,240 would result in a $2,000 reduction in your annual benefits.
Beneficiaries reaching their FRA in 2023 have a higher limit of $56,520. The SSA withholds $1 from their benefits for every $3 earned above this limit until the month they reach their FRA.
Monthly vs. Annual Calculation
While the SSA applies the earnings test annually, benefits are paid monthly. So, it estimates your yearly earnings and adjusts your monthly benefit accordingly. If your actual earnings differ from the estimate, the SSA recalculates your benefit and pays any withheld or overpaid amount.
In the first year of retirement or benefit claim, a monthly earnings test limit applies, allowing you to receive full benefits for months where you earn less than the limit or don’t work at all.
Withheld Benefits
If benefits are withheld due to the earnings test, they aren’t lost. The SSA increases your benefit amount when you reach your FRA to account for the months with reduced or suspended benefits. However, this adjustment doesn’t fully offset the loss. The SSA uses a formula based on your age and the affected months to calculate the increase. It assumes an average life expectancy of about 85 for someone aged 62 in 2023. You’ll receive more if you live longer and less if you live shorter.
Deciding whether to work and claim Social Security benefits at 62 depends on factors like health, life expectancy, financial needs, and other income sources. Consider the impact on your spouse’s or survivor’s benefits, which will be permanently reduced based on your reduced benefit.
Estimating Your Benefits
To estimate your Social Security benefits at different ages and income levels, use the SSA’s online calculators or access your personal Social Security statement through your my Social Security account. Other online tools like AARP’s Social Security Benefits Calculator, Bankrate’s Social Security Calculator, or Money’s Social Security Calculator can help you compare scenarios and assess their impact on your retirement income.