Individuals nearing retirement age may find early retirement appealing, but it is essential to be aware of the guidelines set by the Social Security Administration (SSA) when considering this option.
Individuals who elect to retire prior to reaching the full retirement age of 65 will incur a reduction in their benefits, amounting to 30%. To illustrate this, consider the following example: a retiree who chooses to begin receiving benefits at 62 years of age will receive $2,000 per month, whereas someone retiring at 65 will receive the full benefit amount of $3,000. Conversely, a retiree who delays benefits until 70 years of age will receive $5,000, representing a benefit increase of more than 100% compared to the full retirement age.
Retirees who continue to work before reaching full retirement age may be subject to the Social Security earnings test, which assesses their income level to determine the extent to which their monthly benefits will be retained.
The Social Security Administration has established an annual income limit for beneficiaries under full retirement age, which is set at $24,480 for the current year. Under this rule, for every $2 earned above this threshold, $1 will be deducted from the beneficiary's benefits.
The Social Security Administration clarifies that earnings retained while continuing to work after full retirement age are not lost, but rather, they are incorporated into an individual's monthly benefit once it is calculated at full retirement age.
For individuals who are nearing retirement age and already in the year they will meet their full retirement age, a different earnings limit applies. In 2026, this limit was set at $65,160 annually. Those who earn above this threshold will have their benefits reduced by $1 for every $3 they earn. This reduction in benefits will cease once the individual reaches the month in which they meet their full retirement age, at which point they can earn any amount without impacting their benefits.
The Social Security Administration notes that funds withheld from benefits prior to full retirement age do not go to waste. Instead, once a beneficiary reaches full retirement age, the SSA recalculates the benefit amount, taking into account the months during which payments were delayed.
The Social Security Administration (SSA) only considers income from wages, commissions, interest on bonds, and earnings based on the number of hours worked when calculating benefits. Excluded from these calculations are sources such as pensions, capital gains, and investments.
