Many Americans expect that they will start receiving Social Security payments at the age of 62. These benefits are definitely a source of financial relief. However, recipients should be aware of the consequences of taking benefits before they reach their full retirement age.
According to the Social Security Administration, the retirement age varies between 66 and 67. It depends on your birth year.
If someone chooses to start their benefits at 62, there are certain conditions attached to it. The social security benefits would be different in comparison to what one would receive if they had waited till full retirement age.
The Social Security Administration also imposes a wage cap in addition to the lower payouts. There are penalties involved in taking early Social Security benefits. People under FRA are allowed to make up to $23,400 per year in 2025.
If the annual salary goes above that amount, there will be penalties. Recipients could lose $1 for every $2 earned over the limit. This way, SSA could withhold a percentage of the benefits.
However, not every source of income is considered to be within the $23,400 limit. The SSA only takes into account “earned income,” such as wages or earnings from self-employment. Based on these, the reduction calculation is made. There are still a number of revenue streams that are exempted:
Dividends and Interest: Profits from savings accounts, stocks, and bonds are not deducted from your benefits and are not considered earned income.
IRA Withdrawals: The SSA’s earnings criteria do not apply to distributions made from Individual Retirement Accounts.
Pensions and Retirement Payments: No matter how much you get from employer-sponsored pensions or annuities, it has no bearing on your Social Security benefits.
The decision of when to claim Social Security benefits is rarely black and white. It’s a puzzle that depends on many personal variables—like life expectancy, health, and income needs—but one piece tends to stay constant: the potential return from waiting.
– For every year you… pic.twitter.com/SdaEhQv2dK
— Nick Ross, CFP® (@nickross_8) May 6, 2025
Aside from traditional retirement and investment accounts, there are other earning modes too that won’t be affected by the income limit. Social Security benefits do not depend on:
Rental Property Earnings: Rental income is not regarded as earned and will not be deducted from your benefits as long as you are not materially engaged, that is, managing rental properties on a full-time basis.
Gifts and Inheritances: The SSA income limits do not apply to lump sum payments made by family members, estates, or court settlements.
Veterans Affairs Benefits: Social Security income limits are not applied to disability benefits or compensation received from the Department of Veterans Affairs.
These limits of earning and the policy of withholding the benefits do not apply after the beneficiaries have reached their full retirement age. After FRA, recipients can keep working, yet can claim full social security benefits.
In fact, the Social Security Administration will recalculate your payments at FRA. If your wages were previously high enough to lower your benefits, all the benefits are recalculated, and withholds are removed. This frequently results in higher monthly checks going ahead.
You must carefully consider your sources of income before deciding to start receiving Social Security payments early.
You can make better selections if you know which forms of income are excluded from the reduction guidelines.
