How Much Can I Make If I Retire at 62?

Retiring at age 62 is the earliest opportunity to receive Social Security benefits, a decision with distinct financial implications. While appealing, early retirement requires assessing how various income streams contribute to your financial well-being. This article explores the components shaping potential income when retiring at this age, including Social Security rules, reductions, and other retirement savings.

Social Security Benefits at Age 62

Claiming Social Security benefits at age 62 means initiating payments before your Full Retirement Age (FRA), resulting in a permanent reduction of your monthly benefit. Your FRA is determined by your birth year; for those born in 1960 or later, it is age 67. For those born between 1943 and 1959, your FRA is between age 66 and 66 and 10 months.

The reduction is calculated based on the number of months you claim benefits before your FRA. Your monthly payment is reduced by 5/9 of one percent for each of the first 36 months, and then 5/12 of one percent for each additional month.

For example, if your FRA is 67 and you claim benefits at age 62 (60 months early), your monthly benefit will be reduced by approximately 30%. This reduction is permanent and applies to all future payments, including cost-of-living adjustments (COLAs). The Social Security Administration (SSA) provides an online account where individuals can review their estimated benefits statement.

Understanding Social Security Earnings Limits

If you work while receiving Social Security benefits before your Full Retirement Age (FRA), your earnings can affect your benefit amount. The Social Security Administration (SSA) applies an earnings limit that may lead to temporary benefit withholding. This limit changes annually.

For individuals under their FRA for the entire year, the annual earnings limit for 2025 is $23,400. If earnings exceed this, the SSA withholds $1 in benefits for every $2 earned above the limit. For instance, earning $25,000 in 2025 while under FRA all year means $800 in benefits are withheld ($1,600 excess / 2).

A higher earnings limit applies in the year you reach your FRA. For 2025, this limit is $62,160, and $1 in benefits is withheld for every $3 earned above this amount. Only earnings accumulated before the month you reach your FRA count toward this limit. Once you reach your FRA, the earnings limit no longer applies. Any benefits withheld are not permanently lost; your monthly benefit amount is recalculated at your FRA to account for previously withheld amounts, potentially leading to higher payments later.

Additional Retirement Income Streams

Beyond Social Security, individuals retiring at 62 often rely on other savings. Employer-sponsored plans, such as 401(k)s and 403(b)s, are common sources. Withdrawals from these accounts before age 59½ are generally subject to a 10% additional tax, plus ordinary income tax. However, if you separate from service at age 55 or later, you may withdraw from that employer’s plan without the 10% additional tax, known as the Rule of 55.

Individual Retirement Accounts (IRAs) are also significant income sources, with Traditional and Roth IRAs being most common. Traditional IRA withdrawals are typically taxed as ordinary income, with a 10% additional tax generally applying before age 59½. Roth IRAs, funded with after-tax dollars, allow tax-free and penalty-free withdrawals of contributions at any time. Qualified withdrawals of earnings from a Roth IRA are also tax-free if the account has been open for at least five years and you are age 59½ or older.

Personal savings and investment accounts, like brokerage accounts, offer additional flexibility. Funds are typically accessible at any age without early withdrawal penalties. Income from these investments, such as dividends, interest, and capital gains, is taxed in the year it is realized. Other assets, like rental properties or annuities, can also provide steady income streams.

Tax Implications of Retirement Income

Various retirement income streams are subject to different tax rules, impacting the net amount available for living expenses. Social Security benefits can be subject to federal income tax based on your “provisional income.” This is calculated by adding your adjusted gross income (excluding Social Security), any tax-exempt interest, and half of your Social Security benefits.

For single filers, if provisional income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable. If it exceeds $34,000, up to 85% may be taxable. For married couples filing jointly, these thresholds are $32,000 and $44,000, respectively.

Withdrawals from traditional pre-tax retirement accounts (e.g., 401(k)s, 403(b)s, Traditional IRAs) are generally taxed as ordinary income in the year of withdrawal. These distributions are added to your other taxable income and are subject to your marginal income tax rate. In contrast, qualified withdrawals from Roth accounts (e.g., Roth IRAs, Roth 401(k)s) are entirely tax-free because contributions were made with after-tax dollars.

Other income sources also have specific tax treatments. Pension income is typically taxed as ordinary income. Investment income from brokerage accounts, such as interest and ordinary dividends, is generally taxed at ordinary income rates. Qualified dividends and long-term capital gains, from assets held over one year, typically benefit from lower tax rates.

State income taxes on retirement income vary; some states exempt all retirement income, while others tax specific sources like pensions, 401(k)s, or IRAs. Most states do not tax Social Security benefits.