Dear Planning to Retire,
I make about $45,000 per year. Should I start drawing Social Security even if I have to give half of it back? I just turned 63. I still am working and will probably work for another two years.
If you collect Social Security and earn a certain amount of money by continuing to work, some and possibly all of your benefits can be withheld. But you don't lose those benefits forever. At your full retirement age—for you it's age 66—your benefits will be recalculated to a higher amount. But, in your case, because you are earning well above the earning test limit, the amount is the same as what you would have earned simply by delaying claiming, according to calculations by Hugo Benitez-Silva, an associate professor of economics at the State University of New York at Stony Brook.
I asked Hugo Benitez-Silva to help address your Social Security options with some scenarios.
Delay claiming. Benitez-Silva calculated that if you stop working and begin claiming at age 63 and 2 months (assuming you were born June 1, 1945, and claim in July 2008), you will receive $1,003 a month. Continuing to work and waiting until age 66 to collect would net you $1,237 monthly and grow by 8 percent for each year you delay claiming after that up until age 70.
Claim and keep working indefinitely. If you sign up for Social Security and keep earning $45,000 a year, 50 cents of every dollar over $13,560 will be withheld from your check. So, you will effectively not receive any benefits until nearly age 66 unless you stop working or earn less money. The year you reach your full retirement age, a new formula kicks in. From January of that year until your birthday, you can earn up to $36,120 without penalty, above which your Social Security check is reduced by about 33 cents for every dollar earned. And once your birthday passes that year, the earnings limits no longer apply and you will receive $1,237, Benitez-Silva calculated. But that amount won't increase for continuing to work after age 66.
Retire at 65. If you claim now at the $1,003 rate, and retire at age 65, you will receive $1,003 from 65 to 66 and then $1,154 from age 66 on, Benitez-Silva calculated. (The same as if you had originally claimed at 65, except for that lower benefit the first year.) You can check out some other examples here.
"If someone plans to work well above the earnings test limit until after the early retirement age it seems that little is gained from claiming early, and the person might be equally well off by waiting until the age at which she stops working," explains Benitez-Silva. "Of course, that only works if someone thinks they are going to live long, are patient, and have other good sources of income during retirement."
Working also carries other benefits like being able to tuck more money into your IRA or 401(k), keeps you active and engaged, and lets you pay living expenses without dipping into savings until you can claim the higher amounts.
Here's an article about the ways work affects Social Security benefits.