It’s not a well-known fact, but younger retirees face a harsh penalty for working part-time. If you retire younger than normal retirement age, there’s a limit to how much you can earn and still receive full Social Security benefit payments.
The Social Security administration specifies that “normal” retirement age can vary from age 65 (if you were born in 1937 or prior) to 67 (if you were born in 1960 or later).
Whatever your normal retirement age is, after you reach it you can earn an unlimited amount of money and still qualify for full Social Security benefits.
But if you retire younger than normal retirement age, you are limited as to how much you can earn if you want to still receive full Social Security benefits. For example, before you reach normal retirement age, for every $2 you earn over $14,160, you lose $1 in Social Security benefits. It gets a little better in the actual year you reach normal retirement age, when your benefits will be reduced only when earnings exceed $37,680.
The good news is that these rules apply only apply to earned income. You can have unearned income without losing any Social Security benefits. Unearned income includes income that comes from investments such as retirement plans, pensions, annuities, interest, dividends and capital gains.
So, if you’re planning to retire early but still work, don’t worry. With some advance planning, you might be able to reduce your earned income and make up the shortfall with unearned income.