Key Points from 24/7 Wall St.

• You can claim Social Security starting at age 62, but an early filing will reduce your monthly benefits.
• If you collect Social Security and work before reaching full retirement age, you’ll be subject to an earnings-test limit.
• Because your Social Security checks could be whittled down significantly due to your earnings, you’ll need to consider a decision like this carefully.

One of the toughest financial decisions you might make in your lifetime is choosing an age to start collecting Social Security. You can sign up for benefits at any time once you reach age 62. But if you don’t wait for full retirement age (FRA), which is age 67 for anyone born in 1960 or later, there can be consequences.

Meanwhile, a 64-year-old reader recently sent in a question about claiming benefits early instead of waiting until their FRA of 67 to sign up for Social Security. They’re interested in collecting their benefits while working so they can use the extra money to pay off their mortgage. They feel that being mortgage-free will help them better afford their retirement expenses in the future.

It’s an interesting question to contemplate. But if you’re in a similar boat, you should know that collecting Social Security while working could mean seeing your monthly benefits whittled down substantially.

The problem with claiming Social Security early and working

Once you reach FRA, you can earn any amount of money from a job without the Social Security Administration withholding any portion of your monthly checks. But if you claim benefits before FRA, you’ll be subject to an earnings-test limit that changes annually. And exceeding that limit means having some of your Social Security paycheck withheld.

In 2025, the earnings-test limit is $23,400. From there, $1 in benefits will be withheld for every $2 in earnings above the limit.

The earnings-test limit is considerably higher for someone reaching FRA in 2025, but that’s not the case for the 64-year-old reader above. This means that they don’t have a lot of leeway to earn money without losing a portion of their Social Security check each month. And depending on their salary, their benefit payments could be whittled down to virtually nothing.

Now here’s some good news about withheld Social Security benefits due to exceeding the earnings-test limit. Once you reach FRA, that money is added to your monthly benefits. So it’s not lost forever.

But in this situation, I’d caution the reader to consider holding off on claiming Social Security for a couple of reasons. First, they say they want to file for benefits early and use the money to pay off their mortgage. But they may not end up with all that much money from Social Security if they well exceed the earnings-test limit.

Meanwhile, carrying a mortgage into retirement isn’t such a terrible thing, depending on the amount owed and the interest rate in question. If it’s a lower interest rate, I’d say keep paying the mortgage, take the interest deduction (assuming it makes sense to itemize), and have less money tied up in a house.

But the bigger issue I have here is that claiming Social Security early causes a permanent reduction in benefits. If someone with an FRA of 67 files for Social Security at 64, they’ll shrink their monthly payments by about 20% for life. That could cause financial problems later. And while it’s one thing to claim Social Security early and at least get the money, it’s another thing to claim Social Security early and only get a fraction of those benefits due to earning too much.

Be careful with claiming Social Security early

The reader here is clearly trying to think things through and take steps to alleviate the burden of paying a mortgage in retirement. But my concern is that their desire to eliminate that specific expense will cause them to shrink their monthly Social Security benefits for life and regret it after the fact.

Also, the reader is used to having taxes taken out of their paycheck. What they may not realize, though, is that on top of a reduced benefit from filing early, and a further reduction for exceeding the earnings-test limit, they’ll likely have to pay taxes on their Social Security income as well. So all told, I’d encourage them to consider waiting – or at least consult a financial advisor to see what they say.

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