The Minimum Age to start collecting social security is 62, but there is an earnings test which can significantly lessen your payments.
- If you have not reached your “Social Security Full Retirement Age” and start collecting Social Security in 2017, for every $2.00 you earn above $16,920 your benefit will be reduced by $1.00. Your pension income is not included-only Wages & Business income. This reduction also holds true for your FERS Special Supplement. Once you achieve your “Social Security Full Retirement Age”, there are no reductions, regardless of your income.
- In the year you reach your “Social Security Full Retirement Age”, you can earn $44,880, without any reduction of benefits. For every $3.00 over that amount, your benefit will be reduced by $1.00.
- If you retire & start collecting Social Security before your “Social Security Full Retirement Age”, your payments will be reduced by approximately 6.25% per year for every year you start collecting before your “Social Security Full Retirement Age. Assuming your Social Security FRA is age 66, collecting at age 62 causes a permanent 25% reduction (6.25% x the four years until your FRA). If you started collecting at Age 64, the reduction is 12.5%. It’s not an “all or none” proposition.
- If you retire & start collecting at age 70, your payments will be approximately 32.5% more than if you retired & collected at your FRA, again assuming your Social Security FRA is 66.
- Age 78 is your approximate “Break Even Point”, meaning that if you wait until your Social Security FRA to start collecting, it would take you approximately 12 years to make up the difference of not collecting for those four years.
Social Security Taxation
- Single Taxpayer: If your “Income” is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your payments. (not a 50% tax). Income for this test includes your “Adjusted Gross Income”, Non-Taxable Interest, and 50% of your Social Security payments.
- If more than $34,000, up to 85 percent of your benefits may be taxable (not an 85% tax).
- Married filing jointly: If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
- If more than $44,000, up to 85 percent of your benefits may be taxable.
Your income for the purposes of meeting the above criteria includes your Adjustable Gross Income, tax-exempt interest income and half of your Social Security benefits.
TSP Withdrawal Taxation
Unless you are withdrawing money from a Roth TSP, you will be federally taxed on all TSP withdrawals. Don’t confuse this with the 10% early withdrawal penalty that exists for TSPs and other 401K type plans.
Your pension will be taxed to the extent that the government contributions impact your monthly payments (for most of you that’s over 95%). There is no Income Test.