Although retirement is a dream for many workers, some people choose to continue working as long as they can.
About a third of baby boomers say they intend to work until they are 70 or never retire at all, according to a survey by the Inssured Retirement Institute. In addition, about 17% of retirees return to work after a period of inactivity, revealed a study by the Adecco recruitment solutions company.
Sometimes people continue to work during their retirement because they are passionate about their careers, but other times retirees are forced to acquire part-time jobs because they do not have enough savings to make ends meet. Working during retirement can be a good thing, especially if your savings are lacking, but if you also depend on social security benefits, it's important to understand how your income can affect your monthly checks.
Balancing social security benefits and retirement
Retirement and claiming social security benefits often go hand in hand, but they do not have to happen simultaneously. At the earliest you can claim Social Security before you are 70, but you will receive more money at each check if you delay in claiming benefits until you reach the age of 70. 70 years old.
The age at which you apply for benefits does not have to match your retirement, however. You can retire at age 50 and wait to claim benefits until age 70. You can also apply for social security at age 62 and work until age 90. Many people choose to apply for benefits in retirement because they need extra income, if you continue to work after filing your social security application, part-time or full-time, the amount of your monthly benefit could be reduced or even suspended if certain conditions are met.
Reducing your benefits depends on many factors, including your retirement age and salary. Your FRA is aged 66 or 67, or somewhere in between, depending on your year of birth. If you claim Social Security at this age, you will receive the full amount of benefits you are theoretically entitled to.
If you apply for benefits before your FRA and you are still working, your benefits may be reduced according to your salary. In the years leading up to your FRA, for every $ 2 you earn above the 2019 earnings limit of $ 17,640, your benefits will be reduced by $ 1. Then, during the year when you reach your FRA, until the month you actually reach your FRA, your benefits will be reduced by $ 1 for every $ 3 you will earn beyond $ 30. a different limit of $ 46,920.
Still confused? If that's the case, it's understandable – but it's not as complicated as it sounds. To get a better idea of how your income affects your benefits, let's look at a hypothetical example.
How income limits affect your benefits
Suppose you are 63 years old and you applied for benefits at the end of last year, and you were getting $ 1,000 a month. Your FRA is 67 years old and you have just landed a part-time job earning $ 25,000 a year. As you have not yet reached your FRA, your benefits will be reduced by $ 1 for every $ 2 you earn beyond the limit of $ 17,640. If you earn $ 7,360 more than this limit, your benefits will be reduced by $ 3,680 a year.
Then, in the year you turn 67, you are subject to the new limit of $ 46,920. Because your income is below this limit, your benefits will not be reduced at all.
Do not forget that these reductions are not permanent. Once you have reached your FRA, your benefits will no longer be limited by your income and your monthly social security checks will be adjusted to reflect any discounts you have received. So, in this example, once you turn 67, you will receive your $ 1,000 checks again plus an additional amount each month to make up for all the months you have not received anything because of the discounts.
Another thing to consider is that, depending on your salary, your benefits could be totally eliminated. Let's assume that instead of earning $ 25,000 a year working part-time, you continue to work full time and earn $ 60,000 a year. That's $ 42,360 more than the $ 17,640 limit. Your benefits would be reduced by $ 21,180 a year. This would completely wipe out your social security.
The strategy matters when deciding when to apply for benefits
Before claiming social security benefits, ask yourself if you intend to continue working in any capacity. If so, how will your income reach the income limits of Social Security?
If you expect to make a lot of money – so much so that your benefits can be fully withheld – it may be wise not to claim social security up to your FRA or beyond. After all, if in any case you do not receive any of your benefits before your FRA, why not ask to claim them earlier?
It is also advantageous to wait for your FRA to claim Social Security – you will mainly receive larger checks each month. If your FRA is 67 years old and you are waiting to receive your retirement benefits until the age of 70, you will receive an additional 24% increase from the total amount to which you are entitled. So if you do not need that money to pay the bills and make ends meet, you might as well take care of those big checks.
On the other side of the coin, if you are claiming benefits earlier than your FRA because you need this extra money, consider that this money will be really useful if your checks are reduced because of your income. If you expect to accumulate $ 1,000 more per month in benefits but only receive $ 500 because you are still working, is it enough to cover all your expenses? If not, you will need to think about how you will bridge the gap.
Claiming social security benefits is not as simple as it seems, and many factors determine how much you will receive each month. Working during retirement can help you significantly prepare your savings for the rest of your life, but make sure you know the impact of your income on your benefits. By thinking about the future and considering all your options, you will be more willing to apply for benefits at the age that suits you.