Additional Coverage:
Early Social Security? Here’s What Won’t Ding Your Benefits
Thinking about cashing in on your Social Security benefits before your full retirement age? While it might seem like a tempting option as early as 62, there are some financial catches to consider.
Your monthly checks will be temporarily smaller, and for every $2 you earn over $24,480 a year, $1 will be deducted from your benefits. Ouch!
But don’t despair! That reduced money isn’t gone forever; it gets added back to your monthly checks once you hit your full retirement age.
Plus, if you absolutely need to start receiving benefits early, not all income sources will count against that $24,480 limit. This gives you a little breathing room when planning your early retirement finances.
Curious about what income won’t cut into your early Social Security checks? Let’s dive in!
The “Free Pass” Income List:
- Interest or Dividends: That money your stocks, bonds, and savings accounts are earning?
It’s all good. Only income from your actual job counts toward that yearly earnings limit.
- IRA Payments: Tapping into your Individual Retirement Account to make ends meet? Good news – those withdrawals won’t affect your Social Security benefits.
- Pensions or Other Retirement Pay: If you’re drawing income from a pension or other retirement benefits, rest easy. This doesn’t count against your early Social Security earnings limit.
- Rental Property Income: Got a second property bringing in some cash?
That rental income typically won’t reduce your Social Security benefits. (Unless, of course, being a landlord is your full-time gig.)
- Inheritances or Gifts: Lucky enough to receive an inheritance or a generous gift? This money isn’t considered income for Social Security purposes, and often, you won’t even pay income taxes on it!
- Certain VA Benefits: Veterans Affairs benefits, like disability or compensation, are exempt from reducing your early Social Security benefits.
- Unemployment Benefits: If you find yourself out of a job before reaching full retirement age while receiving Social Security, your unemployment checks won’t count against your benefits.
*However, it’s smart to check with your state’s unemployment office, as Social Security could affect how your unemployment benefit is calculated. *
- Workers’ Compensation Benefits: Similar to unemployment, money from a workers’ compensation payout won’t reduce your monthly Social Security benefit.
- Some Exempt Trust Funds and Annuity Plans: If your trust fund or annuity payments are exempt from federal income taxes, they’re likely also exempt from the Social Security earnings limit.
- Awards and Prizes: Won an award for your service or achievements?
Or perhaps you snagged a prize in a contest (as an individual, not a business)? This money won’t count as income that reduces your benefits.
- Income Earned After Full Retirement Age: The moment you hit your full retirement age, all bets are off!
Any wages you earn from a job no longer count towards a reduction in benefits. Plus, you’ll start receiving those higher checks to make up for any delayed benefits.
This change kicks in during your birth month, so no waiting around!
The Bottom Line
If you can swing it, waiting until at least your full retirement age to claim Social Security benefits can literally pay off. You’ll get higher monthly checks and won’t have to worry about earned income reducing your benefits.
However, everyone’s situation is unique. A financial advisor, like a retirement planner, can help you navigate these waters and decide if taking Social Security benefits before your full retirement age is the right move for your budget and future.