Social Security and Part-time Income. What you should know

These days more Americans than ever before are going to be working past the “traditional” age of retirement. A recent Wells Fargo study of 1000 middle-class Americans showed that nearly 34% of them believe that they’re going to have to work until they reach the tender age of 80 years old.

While this in itself is pretty sour news, the fact is that when you add in part-time income to the Social Security Benefit equation there are a fresh set of tax considerations that have to be kept in mind. For example, if you earn too much you can be pushed into a tax bracket that will cut down on some of your Social Security income and thus on the net gain that you hope to get from working part-time.

One of the first things you need to do is find out what your actual age will need to be before you reach “full retirement age”. Once you reach that age, which is slightly different for everyone depending on the year they were born, you will no longer be subject to the Social Security administration’s “earnings test” since these benefits are not based on your total retirement income but rather on your earnings history.

David Littell, a professor at The American College of Financial Services who teaches retirement planning says that “the whole point of working in retirement is to add to your total income.” He recommends that you figure out exactly how your part-time work will affect your benefits as, from what he says, “you might not benefit tremendously from the combination of work and Social Security benefits.”

He warns that if you have too much professional income, a number that is different for every person, of the 85% of your Social Security benefits could become taxable. Below are a number of other factors that might affect you as a retiree who still working so take a close look at them and, if you have any questions, make sure to talk to your financial  advisor about them ASAP.

  • Regardless of any Social Security benefits that you are already drawing, Social Security taxes will still be taken out of your  current  income.
  • For people that are self-employed they must pay not only the employer but also the employee portion of FICA. The fact that the employer portion is tax-deductible only eases the pain slightly.
  • Keep in mind that some states will tax your Social Security benefits and some will not. The state you live in definitely affects your net profit for many benefits that you’re getting.

If you’re keen on sidestepping some of these problems one of the best ways to do it is to work until you reach 70 and maximize your earnings history. If you do this you can also frontload your encore career income because you can still draw a salary while you are moonlighting. While doing this you can see if your new postretirement career is something that you actually feel will work out for you.

There are certainly a lot more variables that you should know and thus talking to your financial advisor is probably your best bet so that you don’t end up working for nothing or losing any of your Social Security benefits.

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