If you're at least 62 years of age, you can collect Social Security and continue to work. But unless you've reached full retirement age, you'll be doubly penalized:

  • By taking Social Security early, you'll be accepting a benefit that is permanently reduced by about 30%.
  • If you earn too much money, your benefits will be reduced for the following year.

The good news is that if you wait until age 66 or 67 to collect, you'll get the highest possible amount that your salary history entitles you to receive. If you wait until age 70, your benefit will increase another 5.5%–8% each year you delay.

Key Takeaways

  • If you earn over the income limits, your Social Security benefits will be reduced for next year.
  • If you take Social Security before reaching full retirement age, your benefits will be reduced by up to 30%.
  • If you're at full retirement age, there's no limit on your other earnings.

In any case, once you reach full retirement age, the income limit disappears, and you can earn as much as you want without losing benefits. Full retirement age is considered to be age 66 years plus two months for people born in 1955. It rises by months at a time to 67 for those born in 1960 and later.

How Social Security Works

The amount you receive in Social Security benefits is based on an average of your highest-earning years. If you're earning more now than ever before, your best bet is to keep working and delay receiving benefits until age 70. You'll then be eligible for your highest possible benefit.

If you start taking benefits early and keep working, you may run into the Social Security income limits. As of 2019, the government will deduct $1 of every $2 you earn over $17,640 from your next year's benefit level if you are under full retirement age. The figure changes a bit from year to year.

The penalty on earnings is imposed only on earned income. Income from pensions or investments doesn't count.

One alternative, if you don't want to retire, is to cut back to part-time work and stay under that income limit.

Another is to take the temporary benefit hit. This could be reasonable if, say, you are currently making substantially more than in previous years. That would push up the average income that your future benefit level is based upon. But in that case, what do you need Social Security now for? Wait until you're 66 or 67, and the income penalty will disappear.

Note that only earned income counts in calculating your Social Security benefits. Any money you receive from pensions, interest, or investment returns doesn't count toward the limit.

Spousal Benefits

There may be one good reason to consider taking benefits if you're still working, and that is the spousal benefit. The spousal benefit allows partners to claim 50% of the benefits being paid to their spouses if that amount is higher than they would have received based upon their own work histories.

It would take a tricky bit of mathematics to work out if that is worth it in the long run. Factors include your age and your spouse's age, your earned income, and the income that would be lost in a temporary reduction of benefits due to the Social Security income limit. You might ask a financial advisor to do that math.

Survivor Benefits

If you've lost a spouse and are eligible for a survivor benefit, that is a different calculation. You can continue to work while receiving a survivor benefit, then switch at age 70 to a benefit based on your own work history.