In general, it is better to wait as long as possible before taking Social Security benefits, but sometimes it is necessary to start taking benefits early. However, if you are able to continue working while receiving benefits, you may be able to increase your overall benefit. In addition, although your benefits may be reduced due to your work, you can recoup those lost benefits.
Working once you reach full retirement age doesn’t affect your benefits. But if you retire before your full retirement age, there is a limit to how much you can earn and still receive full benefits. If you earn more than $15,720 (in 2015), Social Security will deduct $1 from your benefits for each $2 you earn over the threshold. In the year you reach full retirement age, you can earn up to $41,880 (in 2015) without having a reduction in benefits. However, if you exceed $41,880 in earnings, Social Security will deduct $1 from your benefits for each $3 you earn until the month you reach full retirement age.
Even if your benefits were reduced based on your earnings, you can get that money back. After you reach full retirement age, the government will recalculate your benefit amount to give you credit for any months in which you did not receive a full benefit because of your earnings. You don’t get a lump sum, but your monthly benefit will be increased with the intent of making up the difference.
Continuing to work can also increase your overall benefit amount. Social Security looks at your highest 35 years of annual earnings to compute your benefit. If the years you are working and receiving benefits, are among your highest paid, this will increase your overall benefit. This is true even if you continue working past your full retirement date.
For more information on how work affects Social Security, click here.