Many people need or want to work during the traditional retirement years. Working during your 60s can have a dramatic impact on how much Social Security income you'll receive. Here's a look at how working after age 62 will impact the size of your Social Security payments:
Work without claiming. Retired workers can begin collecting Social Security benefits at age 62. But your Social Security checks are reduced if you claim before your full retirement age. For Americans born between 1943 and 1954, the full retirement age is 66. The full retirement age gradually increases for those born after that, eventually reaching 67 for Americans born in 1960 and later. If you claim benefits before your full retirement age, your benefits will be reduced by up to 30 percent, depending on how early you claim. After your full retirement age, you can increase your check by 8 percent annually by delaying claiming up until age 70.
[Visit the U.S. News Retirement site for more planning ideas and advice.]
Consider income limits. You don't have to be retired to claim your Social Security payments. But if you continue to work and earn too much, some or all of your payments could be temporarily withheld. Workers under their full retirement age can earn up to $14,160 without penalty in 2010. After that, 50 cents of every dollar you earn will be deducted from your Social Security checks. The year you reach your full retirement age, the earnings limit climbs to $37,680 and the penalty is reduced to 33 cents withheld from each dollar you earn above the limit. After you reach your full retirement age, there is no penalty for working and claiming your benefits at the same time. "I usually discourage clients from taking Social Security while they are working unless it is a $1,000-a-month type of job," says Ray LeVitre, a certified financial planner for Net Worth Advisory Group in Sandy, Utah, and author of 20 Retirement Decisions You Need To Make Right Now. Wages, self-employment income, sick or vacation pay, and bonuses count toward the earnings cap, while pensions, annuities, interest, dividends, and capital gains do not.
Benefits are not permanently withheld. The money deducted from your Social Security payments if you earn too much isn't withheld forever. Once you reach your full retirement age, your checks are recalculated to give you credit for the reduced benefits. Consider a 62-year-old worker who claims $800 a month in Social Security benefits and earns $22,160 annually from working until age 66. He would have $4,000, or five months' worth of benefits, withheld from his Social Security checks over the course of the year because of the earnings limit. When he reaches age 66, his full retirement age, his monthly benefit amount will increase to $895 to give him credit for the 20 months of withheld benefits. However, if the same worker had waited until age 66 to sign up, his monthly benefit amount would have grown to $1,076. "It's somewhat more advantageous to simply delay claiming, but the impact depends on your earnings level," says Andrew Eschtruth, a spokesperson for the Center for Retirement Research at Boston College
[See 6 Ways Couples Can Maximize Social Security Payouts.]
Further boost your benefits. Social Security benefits are calculated based on your 35 highest years of earnings. If one of your highest earnings years happens after you sign up, your payments will be automatically increased the following year. "Your earnings post-retirement, if they are higher than the lowest year in your calculation, can result in an increase in the benefit amount," says Stanley Tomkiel III, an attorney in Scarsdale, N.Y., and author of The Social Security Answer Book.
Reader Comments Read all comments (9)
sylvia smith of MS 12:01PM July 13, 2012
Bob G. of OH 10:58AM April 25, 2011
Alan Reeves of IL 11:30PM October 21, 2010