Will My Retirement Job Affect Social Security?
Last Updated: 1/2/19
You can have your cake and eat it too when it comes to working in a retirement. In years past, Social Security laws discouraged older workers from staying on the job. But that’s no longer the case.
Nowadays, Uncle Sam Wants You… To Keep Working
Recent legislation recognizes the value of older workers and actually provides incentives for baby boomers and seniors to remain in the workforce or take retirement jobs.
Those laws eliminated the earnings limits for anyone that has reached Social Security’s full retirement age (FRA), which currently ranges from age 65 to 67. Only those under full retirement age and already receiving Social Security Retirement Benefits are affected by the following limits:
|For People WHO ARE NOT Receiving Social Security Benefits:|
|If you’re…||You can earn up to this amount with no penalty:||If your retirement job pays more than that amount:|
|Any age||No limit||There is no impact on your benefits either now or in the future.|
|For People WHO ARE Receiving Social Security Benefits:|
|If you’re…||You can earn up to this amount with no penalty:||If your retirement job pays you more than that amount:|
|Under full retirement age (62-65)||$17,640||Your benefits are reduced by $1 for every $2 earned over the limit. For example, if your retirement job pays $20,000 a year and your Social Security payout is $12,000 a year, that payout would fall by $1,480 (about 12%) to $10,520.|
|Reaching full retirement age this year (65-67)||$46,920||Your benefits are reduced by $1 for every $3 earned over the limit. For example, if your retirement job pays $50,000 a year and your Social Security payout is $12,000 a year, that payout would fall by $1,547 (about 13%) to $10,453.|
|Over full retirement age||No limit||No impact|
What's Your Full Retirement Age?
Social Security establishes the age at which workers and their families may begin receiving retirement benefits. If you were born before 1938, this is set at age 65. If you were born between 1938 and 1954, the full retirement age increases progressively from 65 up to 66. If your birth year is 1955 or later, your full retirement age increases progressively up to 67. Age 67 is currently the oldest full retirement age though this could increase in the future.
When Should You Begin Drawing Social Security?
You may begin taking Social Security retirement benefits at age 62. But keep in mind, if you begin before reaching your full retirement age (FRA), the monthly benefits are paid at a permanently reduced amount (up to 20 to 25% less) to reflect receiving benefits for more years. Consider these scenarios:
Under FRA and Have Substantial Earnings
It is generally not to your advantage to begin receiving reduced Social Security retirement benefits if your job pays enough to maintain your standard of living. Because you have not yet reached your full retirement age, you will lose a significant portion of your monthly benefit due to the earnings offset limits.
Under FRA and Not Enough Income for Living Expenses
It may be advisable to begin early, though reduced, benefits if your income is not sufficient to meet your living expenses. Your benefits will not be reduced based on your wages if you earn less than the allowed offset limit.
At Full Retirement Age
You may begin full benefits at your full retirement age and no earning limits apply. So, after you reach full retirement age, you can enjoy your full Social Security benefits and retirement job income.
After Full Retirement Age
If you do not need your Social Security retirement benefit for living expenses, you may want to delay beginning benefits until AFTER your full retirement age (up to age 70). When they begin, monthly benefits will be increased substantially above the base (FRA) amount, increasing at about 7 to 8% for each year of delay beyond full retirement age.
What About Income Taxes?
Social Security Retirement Benefits are income tax free for the majority of people and partially tax-free for everyone else. Individuals and families whose income is greater than set limits (refer to Social Security and IRS sources) may have up to 85% of their benefits subject to income tax. The actual calculation of the amount of benefits subject to income tax is fairly complex. A good rule of thumb is that if an individual’s income is below $25,000 or a couple’s income is below $32,000 (these limits assume 50% of your income comes from Social Security) there is likely to be no income tax on benefits received. It is not possible to know for certain what income tax rates will be in the future, but unless your family income is apt to be more than $40,000 to $50,000, your income tax rate is likely to be pretty modest.
Does It Pay To Get A Retirement Job?
For many, continuing to work beyond traditional retirement age is a given. Rising living costs, particularly health care and housing, and the declining value of many employee retirement and savings benefit plans are compelling people to continue to work. For others, the decision is less about money and more about remaining active and making a contribution.
Regardless of your priorities and needs, the job opportunities for older workers are only getting better. Improved health, longer life spans and the shortage of capable and productive workers result in a positive outlook for baby boomers and seniors who need or want to continue working and earning. In fact, continuing to work and remaining active go hand-in-hand with healthier and often happier “golden years.” And Social Security rules now give an extra bit of incentive for you to stay in the game.
Need More Information?
Information about Social Security can be obtained by phone (1-800-772-1213), via the internet at www.socialsecurity.gov or by visiting a local Social Security Administration office. Their TTY number for people with special speech or hearing needs is 1-800-325-0778.