You can’t claim Social Security retirement benefits until you turn 62, but there’s no rule saying you have to be retired to do so. Many Americans choose to receive benefits while they’re still working.

For some, it’s a chance to enjoy a higher standard of living than they could off their paychecks alone. For others, it gives them the opportunity to gradually reduce their hours without affecting their monthly income.

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These strategies work well for some people. But for a certain group of workers, claiming Social Security while working comes with a hidden cost.

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Early claiming comes at a cost

The Social Security Administration assigns everyone a full retirement age (FRA) based on their birth year. It’s 67 for most workers today, though some older adults have FRAs as early as 66. You’re allowed to apply sooner than this, but if you do, it’s considered claiming early.

This gets you more checks, but it also reduces the size of each one. You lose 5/9 of 1% per month for up to 36 months of early claiming and 5/12 of 1% per month thereafter. Those with FRAs of 67 can lose up to 30% by applying for benefits right away at 62.

Early claimers who continue to work are at risk of even greater benefit reductions due to the earnings test. Under this rule, $1 is withheld from their benefits for every $2 they earn over $23,400 in 2025 if they will be under their FRA all year. Those who will reach their FRA in 2025 only lose $1 for every $3 they earn over $62,160. If they are at or over their FRA, they don’t have to worry about the government withholding money from their checks for the earnings test, regardless of their annual income.

It’s possible that some workers could get nothing from Social Security because of the earnings test. That could be a problem if they had counted on that extra income to cover some of their current expenses, but the withheld benefits are not gone forever.

Withheld funds come back to you after FRA (slowly)

Those who have money withheld due to the earnings test get it back in the form of a benefit adjustment at FRA. The government looks at how much it withheld previously and uses this information to determine the size of the increase. This is a one-time change. After this, you’ll continue to get your new, higher amount for the remainder of your life with only small increases for cost-of-living adjustments (COLAs).

Though this is better than losing the money altogether, it might be less desirable for some than getting that extra money today. It may not always be possible, but if you can limit how much income you earn from your job, you might be able to minimize how much the earnings test takes from you or even avoid it altogether.

Keep an eye on your income throughout the year. And if you notice your Social Security checks begin to shrink due to the earnings test, you might have to adjust your budget accordingly.

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