Understanding Social Security and Working at Age 62
Starting your Social Security retirement benefits at age 62, the earliest possible age, means accepting a reduced monthly payment for the rest of your life. For those born in 1960 or later, full retirement age (FRA) is 67, and claiming benefits at 62 results in a permanent reduction of up to 30%. Compounding this reduction, if you choose to work, your earned income is subject to a limit that can further reduce your benefits until you reach your FRA.
The Social Security Earnings Test Explained
Before you reach your full retirement age, the Social Security Administration (SSA) applies an earnings test to your income. This test determines if your part-time work will lead to a temporary withholding of your Social Security payments. For 2025, if you are under your FRA for the entire year, the annual earnings limit is $23,400. For every $2 you earn over this limit, the SSA will deduct $1 from your benefits. While this is a temporary reduction, and the withheld benefits are credited back to you later, it is a crucial factor to consider when planning your income stream.
The Impact of Working in the Year You Reach FRA
Special rules apply during the calendar year you reach your full retirement age. In 2025, a higher earnings limit of $62,160 applies to the months leading up to your FRA birthday. The benefit reduction in this period is also more favorable, with $1 being deducted for every $3 earned over the limit. Once you reach your full retirement month, the earnings test disappears entirely, and you can earn as much as you want without affecting your monthly Social Security payment.
Weighing the Pros and Cons
Retiring at 62 while continuing to work part-time has both advantages and disadvantages. It is important to evaluate them based on your personal financial situation and lifestyle goals.
Benefits of Working Part-Time in Early Retirement
- Maintain an Income Stream: Part-time work provides a steady stream of income that can supplement your reduced Social Security benefits and withdrawals from retirement savings, helping your nest egg last longer.
- Delay Social Security: If your part-time income is sufficient, you can choose to not claim Social Security at 62 and instead delay it. This allows your monthly benefit to grow each year, potentially leading to a higher lifetime payout.
- Health and Social Engagement: Remaining in the workforce offers social connection, a sense of purpose, and mental stimulation, all of which are linked to positive health outcomes.
- Flexible Schedule: Unlike a traditional career, a part-time job often offers more flexibility, allowing you to control your schedule and pursue hobbies or travel.
Disadvantages of Early Retirement with Part-Time Work
- Permanently Reduced Benefits: Claiming Social Security at 62 results in a permanent reduction in your monthly benefit compared to waiting for your FRA. This reduction also carries over to potential spousal or survivor benefits.
- Earnings Test Reduction: As discussed, earning over the annual limit before your FRA can cause your benefits to be withheld temporarily, potentially impacting your cash flow.
- Increased Tax Liability: Additional earned income can increase your overall income, which may result in a higher tax burden on a portion of your Social Security benefits.
- Healthcare Costs: Medicare eligibility doesn't begin until age 65, so you will need to plan for health insurance coverage between 62 and 65, which can be costly. Some companies offer health benefits to part-time workers, which can mitigate this issue.
Case Study Comparison: Retiring at 62 vs. Waiting for Full Retirement Age
To illustrate the financial differences, consider the scenarios below. All values are hypothetical for example purposes and based on someone born in 1960 or later.
| Feature | Scenario 1: Retiring at 62 with Part-Time Work | Scenario 2: Retiring at Full Retirement Age (67) | Scenario 3: Delaying Until Age 70 |
|---|---|---|---|
| Monthly Social Security Benefit | Up to 30% permanently reduced | 100% of your primary insurance amount | Up to 124% of your primary insurance amount |
| Social Security Earnings Limit | Yes (e.g., $23,400 in 2025), subject to withholding | No limit. Earn as much as you want | No limit. Earn as much as you want |
| Potential Benefit Increase | Withheld benefits are credited back at FRA, increasing your monthly payment. Higher earnings years can replace lower ones. | No earnings test to consider. Continued work may increase your 35-year earning average. | Benefits continue to grow until you claim them at 70 |
| Healthcare Considerations | Need to bridge the gap with private insurance or through a part-time employer until Medicare at age 65. | Medicare begins at age 65, several years before claiming FRA benefits. | Medicare begins at age 65, years before claiming age 70 benefits. |
Steps for Successful Planning
If you decide that retiring at 62 with part-time work is for you, here are some steps to take:
- Assess Your Finances: Use the SSA's tools to estimate your benefit at different claiming ages. Factor in your part-time income, retirement savings, and healthcare costs.
- Report Your Income: If you start receiving benefits before your FRA, report your expected income to the SSA. This helps them accurately apply the earnings test.
- Explore Health Insurance Options: Research options like COBRA, marketplace plans, or employer-provided coverage to bridge the gap until Medicare at 65.
- Find the Right Part-Time Job: Look for a role that aligns with your interests and offers the flexibility you desire. Consider if health benefits are a priority.
- Review Your Decision Periodically: Your financial needs and health may change. Re-evaluate your plan as you approach your FRA and consider if delaying benefits further could be advantageous.
Conclusion
Retiring at age 62 and working part-time is a viable strategy for many, offering a flexible transition into retirement. However, it requires careful financial planning to navigate the complexities of Social Security earnings limits and benefit reductions. By understanding the rules and considering both the financial implications and lifestyle trade-offs, you can make an informed decision that supports a healthy and fulfilling retirement. For additional details on how earning income affects your Social Security, visit the official Social Security Administration website.
