Additional Coverage:
Thinking of Taking Social Security Early? Here’s What Income Won’t Reduce Your Benefits
Claiming Social Security as early as 62 is tempting, but it can mean a smaller check. Your benefit is reduced based on how far you are from full retirement age (FRA), and earnings above $23,400 further decrease your payments until you reach FRA.
The good news? The reduction is temporary.
The withheld amount is added back to your checks once you reach FRA. Plus, certain income types don’t count toward that $23,400 limit.
Here are some income sources that won’t affect your Social Security benefits if you claim early:
- Investment Income: Interest and dividends from investments like stocks, bonds, and savings accounts don’t impact your Social Security.
- IRA Withdrawals: Money taken from your Individual Retirement Account (IRA) doesn’t count toward the earnings limit.
- Pensions and Retirement Pay: Pension or other retirement income is excluded from the Social Security earnings limit.
- Rental Income: Income from rental properties (unless it’s part of your primary job as a real estate professional, for example) won’t reduce your benefits.
- Gifts and Inheritances: Money received as gifts or inheritances doesn’t affect your Social Security and may not even be taxable, depending on the amount and your state.
- Certain VA Benefits: Veterans Affairs (VA) benefits, such as disability or compensation payments, don’t reduce Social Security.
- Royalties: Income from royalties is excluded from the earnings limit.
- Unemployment Benefits: Unemployment benefits won’t reduce your Social Security, although receiving Social Security may affect your unemployment benefit amount. Check with your state’s unemployment office for details.
- Workers’ Compensation: Workers’ compensation benefits don’t count toward the Social Security earnings limit.
- Some Trust Funds and Annuities: Certain trust funds and annuity plans that are exempt from federal income tax are also exempt from the Social Security earnings limit.
- Awards and Prizes: Awards for service or achievement, as well as prize winnings (for individuals, not businesses), are excluded.
- Income After Full Retirement Age: Once you reach FRA, earned wages no longer reduce your Social Security benefits, and your checks will increase to account for the previous reductions. This increase begins the month you reach FRA, regardless of your birthdate within that month.
The Bottom Line: While claiming Social Security early might be necessary for some, waiting until FRA offers several advantages. You can earn extra income without reducing your benefits, and your monthly checks will be higher. Consulting a financial advisor can help you determine the best strategy for your individual situation.