Social Security benefits have been around for a very long time. And as you might imagine, a program as essential as Social Security is one that’s loaded with rules.

Some of those rules may be pretty well known. For example, many people are aware that 62 is the earliest age to sign up for Social Security. You may also be aware that the amount of money you earn during your career will influence what monthly benefit Social Security pays you in retirement.

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But there’s one Social Security rule that has the potential to catch you off guard. And it’s an important thing to know about, especially if you’re inclined to sign up for benefits early while you’re still working.

There’s a scenario where you risk having benefits withheld

If you claim Social Security before reaching full retirement age, you’ll reduce your monthly payments on a permanent basis. This means that once you get to full retirement age, your benefits won’t be bumped up — not accounting for cost-of-living adjustments, of course, which Social Security is eligible for every year.

On the other hand, if you claim Social Security early and decide to hold down a job at the same time, you’ll risk having some benefits withheld if your earnings exceed a certain threshold. And to be clear, that’s on top of any reduction you face by taking benefits early.

Let’s say you decide to claim Social Security at age 65 when your full retirement age is 67, which is the case if you were born in 1960 or later. Filing for benefits two years early will reduce them by about 13.33%. And that’s a reduction you’ll have to deal with indefinitely, unless you’re able to undo your filing.

Now, let’s say you claim Social Security at 65 while you’re still working. At that point, if your income exceeds the program’s earnings-test limit, you’ll have some, or potentially all, of your Social Security benefits withheld until full retirement age. At that point, you’ll be paid back, but not in a lump sum. Rather, you’ll get larger monthly benefits to make up for the sum that was withheld earlier on.

This year, the earnings-test limit for Social Security is $23,400. Beyond that point, you’ll have $1 in benefits withheld per $2 of earnings.

If you’ll be reaching full retirement age this year, the earnings-test limit is $62,160. Beyond that point, you’ll have $1 in benefits withheld per $3 of earnings.

Here’s why this is important. If you’re still working and earning a decent sum of money, you might end up in a situation where you’re reducing your benefits for life by filing early, and also having much of that income withheld because of exceeding the earnings-test limit. And that may not make much sense. It’s basically a lose-lose situation.

Think through your decision carefully

It’s not uncommon to claim Social Security before reaching full retirement age. But if you’re going to continue working, you may want to reconsider.

And if not, at least run the numbers based on the earnings-test limits to see how much income you risk having withheld. You may come to the realization that it makes more sense to wait on Social Security as long as you still have a paycheck coming in.

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