How continuing to work will impact your Social Security check next year

Claiming Social Security while still on the job is increasingly common, but there are rules to be aware of to avoid a surprise when your monthly check arrives.

"Most retirees need to supplement their Social Security because the benefits aren't large enough to cover typical living expenses," Richard Johnson, AARP's vice president of financial security, told Yahoo Finance.

You can take Social Security as early as age 62, but your benefit can be reduced by as much as 30% compared to what it would be at your full retirement age (FRA). For anyone born in 1960 or later, your FRA is 67.

If you delay benefits from your FRA until age 70, you earn delayed retirement credits. Those come to roughly an 8% increase in your benefit for each year until you hit 70, when the credits stop accruing.

Here's the catch: If you continue to earn income after claiming Social Security benefits after age 62 and before your FRA, the Social Security Administration (SSA) will temporarily withhold a portion of your benefits for earnings over a certain threshold.

It's not as simple as you might think it should be. In general, $1 is withheld for every $2 earned above the limit until the year you hit your full retirement age.

Last week, the SSA announced that the 2027 annual earnings ceiling for those under full retirement age will increase to $25,560 from $24,480 this year.

In the year you hit full retirement age, that limit increases in 2027 to $67,920 for earnings made in months prior to the month you hit your full retirement age. In the month you hit full retirement age, the annual earnings test ends.

From then on, you can earn without restriction, and while you don't get the amount you forfeited previously in a lump sum, your monthly benefit is adjusted upward, so you recoup all the benefits that were withheld.

The earnings calculation does not count income from pensions, annuities, investment income such as interest, dividends, capital gains, and IRA or retirement account withdrawals.

You can use the SSA's calculator to walk through your scenario.

"We've built a system that practically guarantees that people will have to keep working after they claim," said Bradley Schurman, demographic strategist and author of "The Super Age." "A 3.6% COLA helps, but it trails prices for a lot of retirees."

Inflation is running hotter than it has in a few years, and it's hitting the things older households can't cut back on: housing, food, insurance, and healthcare, he added.