How Much Income Can You Earn & Receive Social Security Benefits at Age 62?

Looking forward to retirement is an American way of life. Some people cannot wait, and want to take early retirement at age 62. This will mean reduced Social Security benefits, restricted by penalties. There may be even more benefit reductions by federal taxes if you collect your Social Security benefits at age 62. Regulations allow early retirees to work, but penalties may apply to earned income.

Retirement at Age 62

You may file for early retirement benefits with Social Security at age 61 and nine months, to receive benefits at age 62. Most individuals filing for early Social Security benefits now find that full retirement age is 66 – the age set by Social Security to collect 100 percent of the primary insurance amount or PIA. Individuals born between 1943 and 1954 reach full retirement age at 66. Collecting early retirement at age 62, when full retirement age is 66, cuts benefits by 25 percent.

Earned Income with Early Retirement

If you choose to work while collecting early retirement, Social Security may impose a penalty. As of 2011, you may earn $14,160 without penalty. Once you reach that income, Social Security imposes a $1 penalty for every $2 you make. If you make about three times the $14,160, you are collecting zero in Social Security benefits, basically paying back everything you receive. You may also pay federal income taxes on your Social Security benefits. The Internal Revenue Service works on combined income figures, calculated with your adjusted gross income plus nontaxable interest and 50 percent of your Social Security benefits. If this calculation amounts to more than $25,000 as an individual or $32,000 as a married person filing jointly, you may owe taxes on 50 percent of your Social Security benefits. Taxation at 85 percent occurs at $34,000 and $44,000 combined income calculations.

Penalty for Year of Full Retirement Age

The year you reach full retirement age has specific regulations about your income. You may earn $37,680 that year without penalty. If you earn more than that amount, the penalty is $1 for every $3 you earn in excess of $37,680. Starting the month you reach full retirement age and thereafter, there is no longer a penalty.

Effect of Penalty

The good new is the months Social Security penalizes you for income earned, it adds back in when you reach full retirement age. This should increase your Social Security benefits at full retirement age and for all the subsequent years. This recalculation, however, will not likely increase your Social Security benefits by the 25 percent you lost by taking early retirement.