Dear Rusty: I am 63½ and working full time with a salary of $125,000 per year. Given the early collection rules, I believe it would not make any sense to start collecting Social Security now, but tell me if I am wrong. Also, when I reach full retirement age (born in 1955) I plan/hope to still be working full time. At that point, I plan to start collecting Social Security because there is no earnings cap (Correct?) and put that benefit money into investments. Would that be the best plan or are there other options? — Planning Ahead

Dear Planning: Your plan is a reasonable one and your assumptions are correct. If you earn as you now are and have taken Social Security earlier than your full retirement age (66 years plus 2 months) you’ll be subject to Social Security’s annual earnings limit. If you exceed the annual earnings limit ($17,040 for 2018) Social Security will withhold $1 in benefits for every $2 you are over the limit, so at your salary level you’d need to give them back all the benefits you were entitled to anyway, essentially resulting in no net benefits.

In the year you reach your full retirement age the earnings limit goes up and the withholding is less, but your earnings would still cause the “penalty” to largely eclipse the benefits you are due. And you are correct that once you reach your full retirement age the earnings limit goes away and you can earn as much as you wish without if affecting your Social Security benefits. As for taking your benefits at your full retirement age and investing them, that is a reasonable strategy if you think you can find a better investment return than the 8 percent you’ll get annually in Social Security delayed retirement credits (DRCs) by waiting beyond your full retirement age to claim your benefits (You actually earn DRCs at the rate of two-thirds of 1 percent per month of delay or 8 percent per year).

DRCs continue to be applied until you reach the maximum at age 70, at which point your Social Security benefit when you claim it will be 30.7 percent more than it would have been at your full retirement age. And you’ll get that higher benefit amount for the rest of your life. But whether to take that guaranteed 8 percent annual increase in your Social Security benefit amount, or to claim your benefits at full retirement age and invest them, is an investment choice only you can make.

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