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Collecting Social Security and Working Beyond Your Full Retirement Age - The Motley Fool
You’ve finally reached your full retirement age (FRA), you’re healthy, and you like your job. Now you can collect 100% of your Social Security benefits without being subject to an earnings limit. You’re thinking about the extra money and your benefit continuing to grow as you keep working. But will it? Let’s explore what factors may affect your Social Security benefits even after you reach your FRA.
First, keep in mind that Social Security is taxed. Even with the $6,000 extra deduction for people 65 and older, part of your Social Security may still be taxed. The income limits for taxing Social Security were set in 1983. A single person’s Social Security is taxed when their modified adjusted gross income (MAGI) is over $25,000. In today’s dollars, that $25,000 is worth $83,000. The taxation of Social Security was meant to affect only high earners, but today, approximately 40% of people with other income pay some tax on their Social Security benefits. Individuals pay taxes on up to 50% of their benefits when their MAGI reaches $25.000, and up to 85% when their MAGI reaches $34,000. For married couples, taxation of up to 50% begins at $32,000 and can reach 85% over $44,000. Your MAGI is your AGI plus 50% of your Social Security benefits plus non-taxable interest.
Your Social Security benefits are based on your 35 highest years of earnings, which have all been adjusted for inflation through the year you turn 60. If you don’t have 35 years, Social Security will use zeros to make up the difference. To maximize your Social Security benefit, review your earnings regularly and aim to increase your income if possible, especially if you still have zeros in your calculation.
If your plan is to start your Social Security at your FRA, it is important to account for the taxes you will pay on your benefits, but you will still come out ahead financially. Another option is to delay taking your Social Security benefits until you actually retire, or until age 70, when your benefit stops growing except for any cost-of-living increases.
Christy Bieber has written an article about some of the “hidden catches’ of working beyond your FRA and collecting your Social Security benefits. Read her full article here ….
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