Social Security makes decreased retirement benefits available at age 62 for individuals who qualify with 10 years or 40 credits of work history. An early retiree at age 63 can collect Social Security retirement and continue to work. Social Security imposes penalties on early retirees who earn more than $14,160 a year in 2011. The Internal Revenue Service may tax your Social Security benefits as well. With the loss for taking benefits early, the penalties for earned income and taxes imposed on Social Security benefits if you have income in excess of $25,000, you may not see much benefit from taking Social Security early at age 63.
Social Security taken any year prior to full retirement age decreases benefits about 6 percent a year if your full retirement age is 66. Age 66 is full retirement age for individuals born between 1943 and 1954. Retirement benefits at age 62 are about 25 percent less than at age 66. Age 63 benefits are about 20 percent less than benefits at full retirement age of 66.
If you receive Social Security benefits early at age 63 or any age before your full retirement age, Social Security penalizes your earned income. For every $2 you earn in excess of $14,160, Social Security wants $1 back in penalty. If you notify Social Security ahead of time that you anticipate making more than the limit, it will withhold your Social Security checks until you have paid the anticipated penalty. If you notify Social Security after you earn the income, it will start the next year withholding your checks until the penalty is paid. When you reach full retirement age, Social Security adds penalty months back into your benefits. You may see a slight increase in your monthly benefit at that time.
Full Retirement Age
For the year you are going to be age 66 -- if that is your full retirement age -- Social Security allows earned income of $37,680 before penalty. The penalty imposed is $1 for every $3 earned in excess of the $37,680 limit. Once you reach your birthday month, no additional penalties accrue and you can earn any amount of income without loss of benefits.
The Internal Revenue Service uses combined income figures to calculate taxes for Social Security recipients at any age. Your combined income is your adjusted gross income plus nontaxable interest and half of your annual Social Security benefits. If that totals more than $25,000 and you file a single tax return, the IRS taxes your Social Security benefits. Individuals married filing jointly may have $32,000 in combined income before taxes apply. The IRS taxes 50 percent of Social Security benefits for singles with combined income between $25,000 and $34,000. The figure for taxation of 50 percent of Social Security benefits for married retirees filing a joint tax return is $32,000 to $44,000. Singles earning more than $34,000 and married individuals filing jointly who earn more than $44,000 pay taxes on 85 percent of Social Security benefits.
- Social Security Online: How Work Affects Your Benefits; January 2011
- Social Security Online: You Can Work and Get Social Security at the Same Time; February 2011
- Social Security Online: Can You Take Your Benefits Before Full Retirement Age?; February 2011
- IRS.gov: Publication 915 -- Social Security and Equivalent Railroad Retirement Benefits 2010
Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.