The earliest most people can apply for Social Security benefits is 62. You can apply for survivor benefits at age 60 and not married. Whenever you apply for Social Security benefits before your full retirement age, those benefits are always reduced. If your full retirement age is 67, the list below shows what percent of your full retirement age benefit you will receive.

62-70%

63-75%

64-80%

65-87%

66-93%

67-100%

There is another issue that you need to contend with if you file for benefits before your full retirement age, and that is the annual earnings limitation.

Full retirement age ranges from 66 to 67 depending on when you were born, and Social Security considers you completely retired at your full retirement age.

When you file for Social Security benefits you are telling Social Security that you are retired. In 2024, Social Security will allow you to make $22,320 a year being retired. That amount increases to $59,520 in the year you reach your full retirement age. If you make more than that, you are not considered retired and not eligible for full benefits. The annual earnings limitation applies to all benefits received before full retirement age, whether it be your own benefit, spousal, ex-spousal, survivor, or children's benefit. This earnings limitation is only applicable to W-2 wages and Self-Employment income. It does not include interest income, dividend income, rental income, capital gain income, etc.

If you worked for wages, income received after retirement counts as a “Special Payment” if the last task you did to earn the payment was completed before you stopped working. Some special payments to employees include bonuses, accumulated vacation or sick pay, severance pay, back pay, standby pay, sales commissions, and retirement payments.

Once you exceed the annual earnings limitation, for every $2 over the limit, Social Security will withhold $1. For example, if you have wages of $42,320, you would be $20,000 over the limit. Social Security will withhold $10,000 in benefits. So, if you are receiving $2,250 a month, you will not receive the first 5 months of benefits since Social Security withholds in full monthly amounts. In addition, the year you reach full retirement age, for every $3 over the limit, Social Security will withhold $1.

There is one more issue called the monthly earnings test. In certain cases, the monthly earnings test is generally used by midyear retirees, usually in the year of retirement, and can only be used once.

So here is the dirty little secret, you will notice that I have used the word “withhold.” Most people think that if they exceed the annual earnings limitation, they lose the Social Security benefit. You never lose your benefit because of the annual earnings limitation. It’s a matter of when it gets paid. The withheld benefits result in a higher benefit check later, so if you live to life expectancy you will collect the same amount, as if the annual earnings limitation never applied.

I find that the annual earnings limitation is not commonly known by people wanting to claim their Social Security benefits before their full retirement age. Proper planning is especially important and can help minimize your exposure to this. Remember, take the wrong benefit at the wrong time, it’s always smaller and forever.