Starting Social Security benefits before reaching full retirement age brings into play the earnings test.
If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2018, the income limit is $17,040.³
During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2018, the limit is $45,360 before the month the worker reaches full retirement age.⁴
For example, let’s assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age. In that year, before the month the worker reaches full retirement age, the worker earns $65,000. The Social Security benefit would be reduced as follows:
Earnings above annual limit $65,000 – $45,360 = $19,640
One-third excess $19,640 ÷ 3 = $6,547
In this case, the worker’s annual Social Security benefit would have been reduced by $6,547 because he or she is continuing to work.