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Many people continue to work after retirement age, either by choice or out of necessity. But if you are receiving Social Security benefits, you need to be aware of how working can affect your benefit payments. Earning income above Social Security thresholds can cause a reduction in benefits and mean your benefits will be taxed. Whether it makes sense to work and collect Social Security at the same time is a complicated assessment that depends on how much you earn and when you begin taking Social Security benefits.
If you work and are full retirement age or older, you can earn as much as you want and your Social Security retirement benefits will not be reduced. However, individuals may begin taking retirement benefits early, beginning at age 62. If you are younger than full retirement age, there is a limit to how much you can earn and still receive full benefits. If you earn more than $17,040 (in 2018), Social Security will deduct $1 from your benefits for each $2 you earn over the threshold.
In the year you reach full retirement age, you can earn up to $45,360 (in 2018) without having a reduction in benefits. However, if you exceed $45,360 in earnings, Social Security will deduct $1 from your benefits for each $3 you earn until the month you reach full retirement age. Once you reach full retirement age, your benefits will no longer be reduced. For example, if your monthly Social Security benefit is $700 and you earn less than $17,040, you will receive $8,400 in benefits for the year. However, if you earn $18,480 ($1,440 over the threshold), you will receive $7,680 in benefits ($8,400 minus one-half of $1,440).
Note that if your benefits are withheld, at least some of those benefits will be returned to you in the form of higher monthly benefits once you reach full retirement age. When you reach full retirement age, Social Security will recalculate your benefits to take into account the months in which your benefits were withheld. In addition, if your latest year of earnings turns out to be one of your highest years, Social Security will refigure your benefit based on the higher earnings and pay you any increase due.
Working also can affect Social Security in regard to taxes. If your combined income (Social Security calculates “combined income” by adding one-half of your Social Security benefits to your other income) is between $25,000 and $34,000 (or $32,000 and $44,000, if filing jointly), you may have to pay taxes on 50 percent of your benefits. If your income is more than $34,000 (or $44,000 if filing jointly), then you may have to pay taxes on up to 85 percent of your benefits.
Don’t learn these lessons the hard way, contact one of our seasoned attorneys to discuss your estate planning needs.