How will your retirement be impacted by earning limits for Social Security.
Money Talks News’ recent article entitled “How Much Can I Earn Before Hurting My Social Security?” says there’s a critical difference between retiring and claiming benefits. They don’t have to coincide. They are two separate decisions.
You can increase monthly benefits if you wait to claim beyond your full retirement age. Therefore, if you wait until age 70 to claim, your benefit will be 32% higher than the benefit you’d get if you claim at full retirement age.
Of course, the amount of flexibility you have in delaying claiming depends on what financial resources you have to tide you over until deciding to claim. You should consider how low interest rates are today and how little return you get in a savings account if you have enough savings. As a result, spending savings now to claim benefits later can lead to a much higher benefit income from Social Security in the future.
However, if you don’t have sufficient savings, you’re probably not going to delay claiming unless you keep working. Therefore, you should understand the impact continuing to work has on your Social Security benefits.
Per the Social Security Website, addressing earning limits for Social Security:
Based on Internal Revenue Service (IRS) rules, you will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:
- file a federal tax return as an “individual,” and your combined income* is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- More than $34,000, up to 85 percent of your benefits may be taxable.
- file a joint return, and you and your spouse have a combined income* that is
- between $32,000 and $44,000; you may have to pay income tax on up to 50 percent of your benefits.
- more than $44,000, up to 85 percent of your benefits may be taxable.
Continuing to work may increase your future benefits. Your benefits will increase if your present income subject to Social Security taxes is higher than your income in the past. Your benefits are based on your highest 35 years of earnings, adjusted for inflation. You might also be subject to the earnings test. If you’re not yet at full retirement age, Social Security might reduce your present benefit based on how much you earn.
Benefits lost of earning limits for social security will increase benefits at full retirement age, so they aren’t really “lost.” However, the earnings test doesn’t apply once you reach full retirement age.
Therefore, continuing to work will not only bring in more income. It can increase the baseline calculation of your benefits.
If, in addition, working lets you wait to claim your benefits, it could significantly increase the Social Security payments you receive for the rest of your life.
Reference: Money Talks News (Nov. 18), 2021) “How Much Can I Earn Before Hurting My Social Security?”