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For various reasons, many people continue to work while collecting Social Security retirement benefits. Some people need the additional income while others simply enjoy keeping busy. In 2016, Associated Press reported that more than 4 in 10 Americans over 50 years of age begin taking Social Security benefits before retirement age. Whatever the reason, there are important tax implications to consider should you choose to work while receiving Social Security benefits.
You can start collecting Social Security retirement benefits at age 62, but full retirement age is between 65 and 67, depending on your birth year. People age 65 and younger who work while collecting Social Security will have their benefits reduced by $1 for every $2 they earn over $16,920 in 2017.
If you reach full retirement age in 2017, your benefits will be reduced by $1 for every $3 you earn over $44,880 in the months before you reach full retirement age (depending again on your birth year). For these purposes, earnings include gross wages from a job, or net earnings if you are self-employed. It does not include pensions, annuities, investment income or other retirement benefits. Starting with the month you reach full retirement age, your benefits will not be reduced no matter how much you earn.
Keep in mind that the amount of the benefit that is reduced while you are working is not gone forever. Once you reach full retirement age, it will be returned to you over time in the form of a slight increase in your monthly benefits.
Your earnings in retirement also affect the amount of benefits subject to income tax. If your “combined income” (including adjusted gross income, tax-exempt interest and half of your Social Security benefits) exceeds $25,000 as an individual or $32,000 for a married couple filing jointly, you may have to pay federal income taxes on as much as 85% of your benefits.
Imagine what your ideal retirement looks like. Do you see yourself spending a lot of time at the golf course? Volunteering? Babysitting your grandchildren? Or, maybe you’d prefer to continue working because it energizes you and gives you purpose. Ultimately, the decision is up to you. If you need any assistance, we’re here to help. Please contact us if you have any questions about Social Security benefits or retirement.