How Much Can You Earn When You Are Receiving Social Security Benefits?

Early Retirement

You may claim early Social Security retirement benefits at 62 or any month between age 62 and 66. Age 66 is full retirement age for individuals born between 1943 and 1954 for Social Security calculations in 2011. Social Security reduces early retirement benefits by about 25 percent at age 62 and by a smaller percentage if you wait until you're closer to age 66.

If you choose to work and take early retirement benefits, you may be subject to Social Security penalties. In 2011, earned income in excess of $14,160 for the year incurs a penalty of $1 for each $2 earned in excess of that figure. The threshold changes periodically. If you notify Social Security in advance of your projected income, they'll withhold your checks until the penalty is paid. If you notify the Social Security office after you have earned the income and incurred the penalty, they may withhold future checks until the penalty amounts are covered.

The year you reach 66, or full retirement age, your earnings limit is $37,680. The penalty is $1 for every $3 you make in excess of the limit. All penalties end when you reach the month of full retirement age. You can earn any amount of money without Social Security penalties and continue to do so during the remainder of your lifetime.

You may find that you have to pay federal income taxes on Social Security benefits. The IRS uses combined income to calculate taxation for Social Security. Combined income is your adjusted gross income plus nontaxable interest and half of your Social Security for the year. If your combined income exceeds $25,000, you may pay federal income taxes on part of your benefits. Single individuals pay taxes on 50 percent of Social Security benefits if combined income totals $25,000 to $34,000. Persons who are married and file jointly pay taxes on 50 percent of Social Security benefits on combined income between $32,000 and $44,000. Combined income above $34,000 for singles or $44,000 for married filing jointly triggers IRS taxation at 85 percent of Social Security benefits.