Q. I will soon be 66 and at full retirement age. I have the option of continuing to work for my present employer for long as I wish. How would my continuing to work affect my Social Security retirement benefits?
A. The connection between work and Social Security Benefits involves the following considerations:
(1) The Amount of Social Security Benefits: Once you reach your full retirement age of 66, you can work and earn as much as you wish and your Social Security benefits will not be reduced. However, if you anticipate that your last year of work will be your highest, it might be wise to continue to work at least another year: your benefits at full retirement would then be recalculated and your benefit increased.
For younger individuals who opt to take benefits before full retirement age, they may see a reduction in benefits based upon earnings: earnings above $14,640 in a year (2011) result in a reduction of $1 for each $2 of earnings above that ceiling. There is a special rule that operates during the calendar year in which an individual turns 66: in that one year, the worker can earn up to $38,800 (2011), but earnings above that result in a reduction of $1 in benefits for every $3 in excess earnings. This 1- for-3 reduction would be the rule for each calendar month until the month in which the worker turned 66. Beginning in that month, there would be no further decrease in the worker’s Social Security retirement benefit because of earnings.
By the way, there is some good news for those younger individuals opting for early Social Security and who choose to continue working and thereby incur a reduction in Social Security benefits: at age 66, there would be a recalculation and at least some of the withheld benefits from the earlier years would be returned to them in the form of increased benefits at full retirement age.
(2) The Taxation of Benefits: If you file your taxes as a single individual and your combined annual income from all sources is between $25,000 and $34,000, then up to 50% of your Social Security benefits would be treated as taxable income; if your combined income is more than $34,000, then up to 85% of your benefits would be taxable income.
If you file a joint return with your spouse, and together you have combined incomes between $34,000 and $44,000, then up to 50% of your Social Security benefits would be taxable income; if your combined incomes exceed $44,000, then up to 85% of your Social Security benefits is subject to tax.
(3) Enhancing Benefits by Deferring Start Date: If you can manage it, delaying receipt of benefits until age 70 will increase your benefits by approximately one-third over what they would be at age 66, and perhaps more based upon additional work credits earned after age 66.
This decision is really not an easy one and involves considering a number of factors. I suggest that you visit the Social Security website at www.SSA.gov and read “How Work Affects Your Benefits”. Also, spend some time with its calculators at www.ssa.gov/planners and then visit your local Social Security office to get some personal advice. Alternatively, you might ask your financial or tax advisor for assistance. Other good resources: IRS Publications 915 and 954. Also, a free calculator is available at the following site: www.AnalyzeNow.com.