Do Your Retirement Plans Include Working, While Collecting Social Security?

“Are you considering working, while collecting Social Security as part of your retirement? Even if you’re thinking about occasionally working part-time, when it comes to working and earning Social Security, you’ve got to be careful.”

If you work while collecting Social Security, you need to be aware that if you start earning too much money at work, your income might be decreased. You might also end up paying more taxes for your Social Security benefits.

Investopedia’s recent article, “How Working Affects Your Social Security Benefits,” says that when you’re retired, if you claim at your full retirement age (FRA), you are entitled to receive 100% of your benefits from Social Security (that age varies based on your year of birth). Those individuals turning 62 in 2018, will be able to fully retire at 66 and four months and begin collecting Social Security.

But claiming benefits early means you get less in Social Security income each month, than if you had waited until your FRA. Therefore, if you can wait until full age, or even later, it may be wise. For every month you claim before the full retirement age, the monthly benefit you receive will go down by a fixed percentage. You could claim an income that is about a third less, than if you would have waited. Claiming early and earning too much, means the amount you receive later may be reduced even more. This year, people who earn more than $16,920 will have a dollar held back for every two earned above the limit.

In 2018, your earnings can go to $17,040, and you won’t have your benefits impacted. Hitting your FRA and claiming in 2018 means you can earn $45,630 without a reduction in benefits. The reduction won’t be spread out over the year. Monthly benefit payments will be stopped, until the amount reduced is covered and then you’ll begin receiving your monthly checks again.

Because there’s no pro-rating, you won’t get income from Social Security until the amount is covered. The rest of the checks will then begin coming each month until the end of the year, with any extra money withheld paid back to you the following year. It is not forfeited, but added into your benefit calculation to up your benefit when you hit FRA.

The income limit on working only applies, if you’re younger than full retirement age. Folks who’ve already reached FRA can earn as much as they want, and it won’t reduce the benefits they get. The limit  only applies to work earnings, not the money you gain from investments, annuities, pensions, etc. For those who are self-employed, Social Security will base their income on their net earnings.

The IRS calculates how much of your benefits will be taxed, based primarily on your adjusted gross income. To see if you will be taxed on your benefit, add half of your expected income to your other income and tax-exempt interest. If that’s more than $25,000 for you alone or over $32,000 for a married couple, some of your benefits will be taxable. If it’s more than $34,000 for you or $44,000 for a married couple in 2018, you may fall into the 85% social security tax bracket.

People keep working in retirement to keep busy, earn more or supplement their benefits.  However, if you claim benefits early or work after reaching full retirement age and receiving benefits, consider what you earn and how it may impact your benefits.

Reference: Investopedia (December 27, 2017) “How Working Affects Your Social Security Benefits”