If your retirement plan includes working, even if only part time, make sure to know your income limits. At a certain point, your earnings will either cause Social Security to be reduced, or you might end up paying more in taxes.
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.
However, 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. People 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.
Some people dread the very idea of retiring, since they enjoy their work or want to continue their income stream to maintain a lifestyle. Just remember that if you claim benefits early or continue to work after reaching your FRA, there may be an impact on your benefits. Speak with an estate planning attorney to figure out the balance of benefits and work that makes sense for you.
As we have mentioned, we have social security expert Kurt Czarnowski (formerly of the Social Security Administration) present annually to our clients as part of our ongoing client care program. Be checking our website to see when he will be speaking in our office next! Or, call our office if you have a question and will be happy to get you in touch with him.
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Reference: Investopedia (December 27, 2017) “How Working Affects Your Social Security Benefits”