Collecting Social Security While Working: 4 Costly Mistakes to Avoid
You can begin collecting Social Security as early as age 62. But if you plan to continue working while collecting benefits, there are several critical mistakes you need to avoid.
In this article, we’ll walk through four common (and costly) mistakes people make when collecting Social Security while still employed — and we’ll use a real-life example to show how these issues play out.
First: A Quick Refresher on Timing
You may claim Social Security:
As early as age 62 (permanently reduced benefit)
At your Full Retirement Age (FRA) (100% of benefit)
As late as age 70 (benefit increases 8% per year after FRA)
Claiming early permanently reduces your benefit. Delaying increases it. But beyond the monthly amount, working while collecting introduces additional planning considerations.
Let’s review the four biggest mistakes.
Click here to listen to this week’s episode on: Learning the ABC’s of Medicare Part A,B,C, and D
Mistake #1: Earning Too Much Before Full Retirement Age
If you collect Social Security before reaching your Full Retirement Age (FRA), you are subject to the earnings test.
Before the Year You Reach FRA
Earnings limit: $23,400 per year
Benefit reduction: $1 withheld for every $2 earned over the limit
During the Year You Reach FRA
Earnings limit: $62,160 (through the month you reach FRA)
Benefit reduction: $1 withheld for every $3 earned over the limit
After You Reach FRA
No earnings limit
No reduction in benefits
Important nuance: In the year you reach FRA, only income earned before the month you reach FRA counts.
Real-Life Example
Let’s call my client Kathy.
Age: 66
FRA: 66 and 8 months
Salary: $75,000
FRA month: June
Social Security benefit at FRA: ~$1,800/month
Because Kathy reaches FRA in June, the higher earnings limit applies from January through May only. If she stays under the prorated limit during those five months, she can collect without reductions starting in June.
However, earnings limits are only one part of the equation.
Mistake #2: Accidentally Eliminating HSA Contributions
This is one of the most overlooked issues.
Once you begin collecting Social Security after age 65, you are automatically enrolled in Medicare Part A.
When that happens:
You can no longer contribute to a Health Savings Account (HSA)
Your employer must stop contributing as well
Medicare Part A is backdated 6 months
That backdating means any HSA contributions made in the six months prior to enrollment become excess contributions — potentially subject to a 6% excise penalty unless removed.
Why This Matters
Kathy receives:
$1,500 per year from her employer into her HSA
She also maxes out her own contributions
If she starts Social Security in June, she:
Loses employer HSA contributions
Must stop contributing herself
Must remove any contributions made in the prior 6 months
Depending on the numbers, delaying Social Security could allow her to make thousands more in tax-advantaged HSA contributions.
Key Rule
If you plan to enroll in Medicare or collect Social Security after 65, stop HSA contributions at least 6 months prior.
Mistake #3: Accidentally Enrolling in Medicare Part B
If you are still working for an employer with 20 or more employees, your employer coverage remains primary.
Enrolling in Medicare Part B while still covered may be a mistake because:
Part B is not free (standard premium: $185/month per person, higher with income adjustments)
Medicare will not pay primary while employer coverage exists
You trigger your 6-month Medigap open enrollment window
That Medigap window is important because it allows you to enroll without underwriting. Triggering it too early may eliminate flexibility later.
If you receive a Medicare Part B enrollment notice after filing for Social Security, you can decline it by returning the form.
Important: Enrolling in Medicare Part A does NOT cancel your employer health insurance. But it does end HSA eligibility.
Mistake #4: Not Withholding Enough Taxes
If you are working and collecting Social Security, your benefits are likely taxable.
Failing to plan for this can result in:
Large unexpected tax bills
Underpayment penalties
You have several options:
File Form W-4V to withhold federal taxes (7%, 10%, 12%, or 22%)
Increase withholding from wages or pension income
Make quarterly estimated payments
Note: Social Security does not withhold state income taxes, so you must address that separately if applicable.
In Kathy’s case, we project her total income and adjust withholding to avoid penalties and keep any tax owed under $1,000.
Final Thoughts
Collecting Social Security while working can make sense — but only if you coordinate:
Earnings limits
HSA strategy
Medicare enrollment timing
Tax withholding
For some people, claiming early is appropriate. For others, delaying is far more beneficial.
The key is not just when you claim — but how that decision interacts with the rest of your financial plan.
Before filing, run the numbers and make sure you’re not making one of these four costly mistakes.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast