Avoid This Pitfall of “Early” Retirement

Many of us can’t wait to retire, and relax to enjoy the fruits of our labor. In other cases, some of us will need to retire a bit earlier than planned, due to unforeseen circumstances. In either case, you probably know that you can claim Social Security benefits as early as age 62. Even though your benefits checks will be permanently reduced from their full amount (by about 25 percent), that might be an acceptable trade-off for you.

In particular, that reduction in benefits might seem acceptable if you plan to work a part-time job, have retired to a consulting position, or are thinking of starting a small business to generate some retirement income. The combination of earnings plus your Social Security benefits might appear to provide a reasonable budget…. But wait! There’s just one little problem with this scenario.

Did you know that Social Security will withhold part of your benefits, if you earn more than a certain limit each year? This rule only applies to those who claimed benefits before their “full retirement age”, and the withholding is somewhat temporary. You will get credit for the withheld amounts later, after you reach your full retirement age. But in the meantime, this rule could put a damper on your plans.

The earnings limit, for those claiming benefits before full retirement age, is currently set at $17,040 per year. For every two dollars you earn over that limit, Social Security will withhold one dollar of your benefits check.

For some people, this withholding won’t affect their plans too much. But for others, the withholding could come as a very unpleasant surprise. This is one of the many reasons that financial planning for retirement is so important. There are quite a number of seemingly odd rules regarding Social Security, taxes, and other important parts of your overall plan.

We never want you to be taken by surprise, so continue working closely with us so that we can help you plan for a stable retirement.