Think you’ll have more money, and/or make it last longer if you work during your retirement years? Maybe, if you pay attention to income limits and delay taking your benefits until your full retirement age.

When to begin your retirement is a very personal decision and depends on many factors: health, current income, and financial need. Advantages to working as a retiree might include earning extra income to help pay expenses, preventing boredom, and making social connections. However, there are possible disadvantages to consider as well, including a potential impact on Social Security benefits and taxes.

The important variable to keep in mind is that the age you begin receiving Social Security benefits will impact your monthly payout. You can start receiving your Social Security retirement benefits as early as 62, however, you aren’t entitled to “full” benefits until you reach your “full” retirement age. And, the longer you can wait the better the payout. You can choose to delay taking your benefits past your full retirement age, 66 for people born 1943 to 1954, up to age 67 for people born afterwards: If you wait until you reach age 70, you get an extra 2/3 of 1% for each month’s delay, totaling 8% for each full year. For example, if you would receive $1,000 per month at your full retirement age of 66, delaying your benefits to age 70 would boost your monthly check to $1,320.

If you decide to delay your benefits until after age 65, do not overlook your Medicare eligibility! You still need to apply for Medicare benefits within three months of your 65^th birthday. If you wait longer, your Part B Medicare medical insurance and Part D prescription coverage may cost you more.

Here are a few other important things to consider about working in retirement years:

 

1. Work income can temporarily reduce Social Security

• Once you start Social Security, the government sets limits on how much you can earn, depending on your age. If you’re younger than your full retirement age, you can earn up to $22,320 in 2024. Social Security will reduce your check by $1 for every $2 you make above the annual limit.
• In the year you reach your full retirement age, you can earn up to $59,520. Social Security reduces your check by $1 for every $3 you make above the limit but only counts the months until your birthday. After you reach your full retirement age, work income no longer reduces your Social Security check.
• The reductions aren’t lost money, however. Social Security carries the benefit forward to give you a larger check later in life. Be careful budgeting though, if you were originally counting on the entire check plus work earnings.

 

2. Can I suspend my Social Security benefits if I go back to work?

• Once you’ve reached your full retirement age of 66 to 67, you can suspend your Social Security benefit if you decide to jump back into the workplace, which means you stop receiving checks. Why would anyone do that? Because suspended benefits can earn a “delayed retirement credit” that boosts the amount you can receive (see above). People who regret starting their checks early can suspend their benefits at full retirement age and profit from this delayed retirement credit. If you suspend your benefit, however, remember that also suspends any spousal benefit your husband or wife may be receiving based on your work record.

 

3. You can keep contributing to retirement funds if you’re still working after 70½

• The age limit for contributing to an IRA has been eliminated, and you can contribute to a current employer’s 401(k) until you leave that job. If you’re self-employed, you can keep contributing to SEP-IRAs or solo 401(k)s.

 

4. You still need to take RMDs from retirement accounts

• When you turn 73, you must take required minimum distributions (RMDs) out of your pre-tax retirement accounts, such as a 401(k) or a traditional IRA. If you’re still working and don’t need the money, you can delay RMDs from your current retirement plan until you leave the job. However, you still need to take RMDs from your traditional IRA and retirement plans from past employment.

 

5. Working in retirement may affect your taxes

• If you’re receiving Social Security and working or receiving other income such as a pension, income from retirement funds or other investments, at least some of your Social Security benefits likely would be subject to taxation.

• Social Security taxation is based on your “combined income” — your adjusted gross income, plus any tax-exempt bond interest, plus one-half of your annual Social Security benefits. AGI includes any money you earn and taxable distributions you take from retirement funds.

 

6. Working later helps your savings last

• It is common nowadays for people to live well into their 90s and beyond, and this creates a real risk of outliving savings. Having income from work means you may not have to dip into your savings. Even if it is part-time work that doesn’t cover all your expenses, it could be helpful. Working later also creates more time to contribute to retirement plans, and these investments will have more time to grow. And you might even qualify for other workplace benefits with financial value.

 

7. Leaving a Medigap plan for workplace coverage is risky

• After you join Medicare, beware of leaving for a company health plan if you bought a Medigap plan to cover the Medicare out-of-pocket costs. If you only have Medicare, you are responsible for substantial deductibles and copayments. Medigap plans cover these costs in exchange for a monthly premium.

• You are guaranteed to qualify for Medigap plans the first time you join Medicare. After that, most states allow insurers to use medical underwriting for applicants meaning you could be denied for pre-existing conditions. You could still purchase a Medicare Advantage plan to cover the out-of-pocket costs without medical underwriting, but these often have less coverage and more restrictions on provider networks than Medigap plans.

 

Reach out to us: Searching for retirement planning or answers to your questions about Social Security? TFG Financial Advisors can help you set future financial goals and create a plan so you have a nest egg for retirement. Contact our Registered Social Security Advisor, Paul Wieseneck CPA, RSSA, at PWieseneck@fuoco.com or by calling 561-209-1102.

 

TFG Financial Advisors, LLC, is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.