There can be a lot of confusion about the impact of taking Social Security benefits before full retirement age. In this article, we will look at three issues that can impact these benefits and, hopefully, clear up some of the misunderstandings by directing you to articles dedicated to each one.
The first issue relates to the amount of your Social Security benefit if it is claimed before full retirement age., The amount of your Social Security benefit will be reduced permanently if you take it before full retirement age. For a previous article written on how to calculate early claiming reductions, click here.
The second issue relates to the Earnings Test. The Earnings Test is applied to individuals who are receiving Social Security benefits before full retirement age and are also earning income from work or self-employment. For a more expansive discussion on how the Earnings Test works, please refer to this article.
The third issue relates to the taxation of Social Security (before full retirement age and after). Please refer to this article to more fully understand how Social Security benefits are taxed by different types of income.
So, an individual who is working before full retirement age and receiving Social Security benefits may be impacted by all three issues above:
1. A permanent reduction of the benefit due to claiming before full retirement age.
2. A reduction of this reduced amount due to earning more than the Earnings Test allows.
3. A reduction in the reduction of the reduction (that’s a mouthful!) due to income taxes due on Social Security benefit!
The bottom line is, please be careful of taking Social Security benefits before full retirement age.
If you have any questions, Feel free to contact me.