Thinking of claiming Social Security before you retire? Think again

Who likes losing money? Wait, not you? Then rushing to sign up for Social Security while you're still earning a paycheck probably isn't the best idea. The program is more complicated than a lot of people realize, and there are a bunch of rules that could trip up unsuspecting workers trying to collect some extra cash. Below, I outline three ways claiming Social Security while still working could cost you money, along with when it might be a good idea to do it anyway.

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Claiming early could reduce your lifetime benefit

You may decide to sign up for Social Security at 62 just because you can, but it's not the wisest move if you expect to have a fairly long life, especially if you still have a job and don't need benefits to help you cover your expenses.

Claiming under your full retirement age (FRA) -- anywhere from 66 to 67 for today's workers -- reduces the size of your monthly Social Security checks. If you start as soon as you're eligible at 62, you'll only get 70% to 75% of your scheduled benefit per check, depending on if your FRA is 67 or 66, respectively.

These smaller checks aren't a problem if you don't think you'll live long, because you may not be around long enough to reap the rewards of larger checks. But if you make it past your mid-80s, you'll probably get a larger lifetime benefit by delaying Social Security until your FRA or until you reach your maximum benefit at 70. At this point, you're entitled to 124% of your scheduled benefit per check if your FRA is 67, or 132% if your FRA is 66. You'll receive these checks for fewer years, but if you live long enough, you'll end up with more overall.

Claiming Social Security early is one thing if you need the money to help you cover your expenses, but if you're still working, you may as well wait to claim so you can collect larger checks down the road.

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Your benefits could be subject to the Social Security earnings test

If you claim Social Security under your FRA, your checks could also shrink due to the Social Security earnings test. For those who will be under their FRA for all of 2021, the Social Security Administration takes $1 from your benefit checks for every $2 you earn over $18,960. If you'll reach your FRA this year, you'll only lose $1 for every $3 you earn over $50,520 if you hit this amount before your birthday. That's more likely to happen if you're working a full-time job.

The good news is that that money isn't gone forever. Once you reach your FRA, the Social Security Administration recalculates your benefit to account for the money it withheld from you in earlier years. This makes your future checks larger. But rather than deal with all of that, you could just wait to claim Social Security until you're ready to leave the workforce if you don't need the money right now.

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You could owe taxes on your Social Security benefits

The government can tax your Social Security benefits if your combined income -- adjusted gross income (AGI) plus nontaxable interest and half of your Social Security benefits -- exceeds $25,000 for a single adult or $32,000 for a married couple. That's also more likely if you're working while you're claiming benefits.

You could face benefit taxes even if you're claiming while retired, but if your income in retirement is lower than your income during your working years, you'll owe less money. Here's a primer on Social Security benefit taxes if you're interested in learning more about how much you might owe.

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When you should claim Social Security while working

It might be a good idea to claim Social Security while you're working if you're 70 or older. Your Social Security checks won't get any larger if you delay benefits past 70, so there's no incentive to keep on waiting. You may as well start claiming even if you may face some benefit taxes, because what you'll gain in benefits will outweigh the additional taxes.

Another time you may want to consider taking Social Security while working is if you're only working part time and need your benefits to help cover your bills. This is a solid option for those transitioning slowly into retirement, but if you're under your FRA, you have to weigh the effects of starting early on your lifetime benefit.

Once you start Social Security, it's difficult to take that decision back, so think it through carefully before you sign up. Waiting until you retire is usually best, but it's an individual decision. Look at all your options before deciding which is right for you.