When you start to collect Social Security benefits, you should be aware of the penalty for working.

  • From age 62 to 65, you lose $1 in Social Security benefits for every $2 you earn over $12,480, in 2006.
  • The year that you turn 65, you’ll face a different earnings penalty until you reach “full retirement age.” People born in 1941, for example, reach full retirement age at 65 years and eight months. Until that time, you’d lose $1 in benefits for every $3 earned in excess of $2,770 a month.

(All of these 2006 earned income thresholds rise each year.)

Therefore, if you earn in excess of the above amounts, you should postpone receiving Social Security benefits until you reach full retirement age, when there’s no penalty for earned income. If you still don’t need the funds, you can wait longer.

Until age 70, the longer you wait to begin benefits will give you a higher monthly benefit. That higher benefit also will be paid to your surviving spouse, if you’re the first to die.