Thinking of Collecting Social Security Early? Not So Fast.

Episode 342 – Thinking of collecting your Social Security at age 62? Watch out for the “Excess Earnings Test.” It’s a bit more complicated than you may realize.

More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 342

Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, thinking of collecting Social Security early? Not so fast.

So, you have the option of starting to collect your Social Security as early as age 62 (age 60 if you’re a surviving spouse), or as late as age 70. For most of us, Full Retirement Age is age 67. That’s when you can collect your full, unreduced benefit. If you collect earlier than your Full Retirement Age your benefit is reduced. The longer you wait, the more money you’ll get every month. So, what do most people do?

Well, the most popular choice is to begin collecting at age 62.[1] Always has been. But beware: there’s a trap lurking that you need be aware of. It’s called the “Excess Earnings Test.” For many people, the Excess Earnings Test effectively limits your choices. You can collect early if you want to—say age 62, 63 or 64—or you can continue working. But if you make a good income from your job, you can’t do both.

Here’s how the Excess Earnings Test works. If you’re still working and making good money, the government would prefer that you wait until Full Retirement Age before you start collecting your Social Security. So, they give you a disincentive if you start early.

For example, let’s say you file at age 62. In that calendar year, your wages in excess of the earnings limit ($23,400 for 2025) will cause a benefit reduction of $1 for every $2 you go over the limit.[2] Note that the limit is indexed annually.

Is it possible to completely eliminate your Social Security benefit in a given year? Sure. Let’s say you want to start collecting in January, but you continue to work. Let’s also assume that your reduced age 62 benefit is $2,000 per month. If you do the math, that means that if you earn more than $71,400 in wages, your benefit will be reduced all the way to zero.

The limit is not quite so onerous in the calendar year you reach Full Retirement Age. For 2025, that benefit reduction is $1 for every $3, and the earnings limit is $62,160.[3] If you turn 67 this year, that more generous limit will apply.

Also note that they use a monthly test (rather than an annual test) in the calendar year you first apply. In 2025, the monthly amount works out to $1,950 per month, or $23,400 divided by twelve. This is important because let’s say you retire in June. You might have made a lot of money in the first half of the year, but that’s irrelevant if you start collecting in July after you’ve stopped working.  In that scenario, there’s no need to worry about the Excess Earnings Test.

How do they enforce this? When you first apply, they’ll ask you how much money you think you’re going to make in the next 12 months after you start collecting. They will adjust your payment accordingly based upon what you tell them, then adjust the payments again the following year when your actual income figures come in from the IRS.

One piece of good news is that not all types of income count towards the test. They’re basically interested only in your earned income. This would include gross wages (W-2 income) and net self-employment income. It does not apply to things like IRA distributions, dividends and interest income. Also, earned income by your spouse doesn’t count; it’s just you.

And just keep in mind that the Excess Earnings Test no longer applies after you reach Full Retirement Age. If you make a million dollars at age 68, it won’t reduce your Social Security income. But you’ll still have to pay your 6.2 percent Social Security withholding tax that gets withheld from your income.

When the Excess Earnings Test does apply, it counts against all types of Social Security benefits; it’s not just your personal benefit. It also applies if you get a spousal, survivor, or children’s benefit. There’s also a special calculation for disability benefits.

What happens if your Social Security benefit is withheld due to the Excess Earnings Test? Understand that when a reduction occurs, it’s done on a monthly basis. For example, let’s again assume your age 62 benefit is $2,000, but due to the Excess Earnings Test, your benefit is going to be reduced by 50 percent. This does not mean that you’re going to get $1,000 per month for the next 12 months. What it means is that you’re going to get nothing at all for the first six months, then the full $2,000 for the next six months.

It’s important to understand this because it means that even if you lose some of your benefits, not all is lost. In this example, your benefit would be adjusted upward when you get to Full Retirement Age. When you get to age 67, they will add back the six months you lost and start treating you as though you had begun collecting at 62 and six months, rather than age 62. This will result in a slight increase when you get to age 67.

It’s safe to say that, like many aspects of Social Security, the Excess Earnings Test is pretty complicated. It’s best not to go it alone. Your Security Mutual Life insurance agent can help. He or she will assemble your team and coordinate with your attorney and tax professional to review your situation and to help determine the plan that will best suit your needs and objectives.

[1] Brandon, Emily and Sandberg, Erica. “The Most Popular Ages to Collect Social Security.” money.usnews.com. https://money.usnews.com/money/retirement/social-security/articles/the-most-popular-ages-to-collect-social-security (accessed June 4, 2025).

[2] Social Security Administration. “Receiving Benefits While Working.” Ssa.gov. https://www.ssa.gov/benefits/retirement/planner/whileworking.html (accessed June 4, 2025)

[3] Id.

More SML Planning Minute Podcast Episodes

This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information. 

The information presented is designed to provide general information regarding the subject matter covered. It is not to serve at legal, tax or other financial advice related to individual situations, because each person’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation.

To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and X (formally Twitter). Thanks for listening, and we’ll talk to you next time.

Tax laws are complex and subject to change. The information presented is based on current interpretation of the laws. Neither Security Mutual nor its agents are permitted to provide tax or legal advice.

The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state. 

SubscribeApple PodcastsSpotifyAndroidPandoraBlubrryby EmailTuneInDeezerRSSMore Subscribe Options