Working after retirement affects your benefits and taxes People often work beyond the “normal” retirement age. Here’s how extending your work life can affect your taxes and retirement benefits.
“Normal” retirement age is not a fixed number. For social security purposes, the “full” retirement age threshold ranges from 65 to 67, depending on your birth date. However, you can elect to start receiving lower payments as early as age 62, or you can maximize your benefits by forgoing them until you’re 70. Once you reach age 70, there’s no incentive to postpone your benefits further, since you’ll already have reached your maximum.
- Earnings limit. If you’re working, you probably should forgo the early payment option. Benefits received before full retirement age will be reduced by $1 for every $2 earned over an annual limit (currently $14,160). However, you will receive a compensating increase when you do reach full retirement age, and your payments will not be reduced thereafter no matter how much you earn.
- Taxable benefits. Whether or not you draw benefits, you’ll continue to pay social security and Medicare taxes on any income you earn from wages or self-employment. Up to 85% of your benefits may become subject to income tax, depending on the amount of your other income.
- Medicare. Medicare eligibility begins the year you reach age 65. The program encompasses four types of coverage: hospital insurance, general medical insurance, Medicare Advantage, and prescription drug coverage.
Working beyond retirement age can require several complex decisions. Call us for help with planning the outcome that’s best for you.