09 Oct When should I start taking Social Security?

Q. I’m turning 66 soon and I’m still working, but I’m trying to decide when I should take Social Security. I’m healthy. I think taking it sooner would allow me to retire sooner so I can cover my expenses without taking too much from my IRA and 401(k) but I also know I will get less. How can I decide?
— Still working

A. This is a great question.

Coming to the correct answer involves a lot of considerations.

At the top of the list should be understanding what your cash flow needs are to cover your expenses and by having a good grasp on what you need to live including housing, transportation and all the personal expenses, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

“Replacing income from employment with a Social Security benefit may result in a substantial reduction that would require that you use other assets to supplement,” she said. “However, if the idea is to continue working and add Social Security with the idea that you might save the benefit for later use, understanding the reductions and possible tax issues is essential.”

For those born in 1960 or later, full retirement age (FRA) is now age 67 — so you are correct when you mention that your benefit will be reduced if you file in advance of that age, she said.

“Given that you are only a year away the benefit would be reduced by 5/9 of 1% per month for each month before your full retirement age or about 6.7%. That reduction of 6.7% will last for your lifetime,” she said. “While that reduction may not amount to a great deal in terms of your monthly payment, it can add up when viewed over a lifetime depending on your benefit amount.”

Mott said you should also keep in mind that the longer you work, the more credits you will accrue. This could help increase your benefit, especially if you consider working beyond full retirement age and hold off claiming.

Social Security provides an 8% credit for each year you delay from age 67 through age 70, which is the mandatory age at which you must take benefits, she said.

The taxation of Social Security is another issue to think about when it comes to filing and it can impact benefits in two ways.

The first relates to taxation.

“Up to 85% of Social Security payments may be subject to tax depending on your income level and filing status,” she said. “You may wish to hold off filing if you are earning enough that 85% would be subject to taxation and especially if the addition of Social Security income would place you in a substantially higher tax bracket.”

This year’s tax legislation has increased the deduction available to seniors by an additional $6,000 until 2028, but this deduction is subject to income limitations, Mott said.

A conversation with your tax professional might prove helpful to understand how the additional income might be taxed and how the new deduction might benefit you.

The second way in which your Social Security benefits can be affected if you continue working only applies if you file before full retirement age (FRA), Mott said. It is referred to as an earnings test.

“In 2025 the earnings limit is $23,400 for anyone who files prior to FRA,” she said. “The benefit received will be reduced by $1 for every $2 earned.”

When a worker reaches FRA, the earnings limit is increased — $62,160 for 2025 — and the amount withheld changes to $1 for every $3 earned, she said.

“Fear not, these withheld benefits are not lost, rather they are added into your record and your overall benefit is recalculated to include what has not been received,” she said.

With all of these possible reductions, your Social Security benefit might not provide the additional income you are anticipating while you continue to work and might be lower than what it could be once you stop working, she said.

A conversation with a certified financial planner and your tax advisor is suggested so you can consider all the possibilities.

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This story was originally published in October 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.