Working While Collecting Social Security

Once you reach age 62 you may start collecting social security. However, if you plan to continue working while collecting social security, it is extremely important to understand how that may impact your benefits and tax liability. Below is a brief overview that may help.

Impact of Working on Benefits

Early Retirement

Collecting social security between ages 62-66 is considered early retirement. You are therefore limited in how much income you can earn. For 2019, you may earn up to $17,640. Anything above that will reduce your social security benefits. The amount of reduction is based on how much your earnings exceed the limit. Social security benefits are reduced by $1 for every $2 earned over the limit. For example, if you earn $18,000 during 2019, that is $360 over the limit. Your social security benefits will be reduced by $180.

Year of Full Retirement Age

Full retirement age for 2019 is 66 years and 6 months. If you are reaching full retirement this year, the amount of income allowed is significantly higher. You are allowed to earn $46,920 for the year. For every $3 that you exceed the limit, your social security benefits will be reduced by $1. Fortunately, this calculation applies only to your earnings before you reached full retirement age.

Full Retirement

If you have already reached full retirement age, there is no limit to your earnings. Working while collecting social security benefits therefore have no negative impact from a benefits perspective (in other words, no reduction in the amount of social security benefit you receive).

Tax Implications of Working While Collecting Social Security

There are also tax implications to consider when working while collecting social security. Taxes are based on combined income, which is your income from work plus half your social security benefits. For single filers, if the combined income is between $25k and $34k, you are taxed on up to 50% of your social security benefits. If it’s greater than 34k, you can be taxed on up to 85% of benefits. For joint filers, the thresholds are higher at $32k to 44k, and $44k+. If you are married but filing separately, then you may pay taxes on your entire benefits.

Should You Work While Collecting Social Security Benefits

Based on all of this information, give extra consideration on whether you should collect social security benefits before full retirement age and whether you should continue working. By closely comparing your benefits to the potential reduction in benefits and tax implications, you can make an educated decision on which path is best for you. If you do work and see a reduction in benefits, some of that may be returned to you when you reach full retirement age. Also, by continuing to work and contribute to social security from your pay, you may also increase the amount of benefits received in the future.

Contact Simmons and Schiavo for assistance with planning out your retirement years. With our knowledge of estate planning, Medicaid planning, and elder care planning,… plus by working with financial planning professionals, we can help you better prepare for your retirement years and beyond.