Social Security is a public retirement program in the United States that is funded primarily by payroll deductions. These payroll deductions continue throughout most people’s working lives. When people reach retirement age or meet certain other requirements, they are able to collect on what they have paid into the Social Security benefit system. In some cases, though, those who are collecting benefits would like to continue working and earning money. Those who do so must consider the possible implications of a continuing income stream on their Social Security benefits.
Full Retirement Age
Full retirement age – or normal retirement age – is the point at which people are able to receive their full Social Security benefits regardless of circumstances. This age can be between 65 and 67, depending on when the particular person was born. Once this age is reached, that person receives full benefits, regardless of whether or not he or she is earning money through work. Consult the Social Security Administration Web site to find out your retirement age. If you were born after 1959, your full retirement age is 67.
Regardless of when your full retirement age is, you can start collecting Social Security benefits at age 62 instead. (However, doing so will result in lower benefits later.) If you would like to receive benefits before full retirement age and work as well, this can result in a problem. Between the age of 62 and your full retirement age, you are allowed to collect whatever benefits to which you are entitled as long as your total annual income for work is less than a certain limit. (Currently, that limit is $14,640.) After that point, for every additional $2 you earn, your Social Security benefits are reduced by $1. This rule remains in effect up until the year in which you reach full retirement age. For the months of that year leading up to your retirement date, your benefits are reduced by $1 for every $3 you earn. After you reach full retirement age, again, you can receive full benefits regardless of whether or not you are receiving wages.
Effects On Benefits
Whether you have reached full retirement age or not, when you work in the United States, you are still required to pay Social Security taxes. By paying into the program in this way, though, you are building up your benefits for later on – when you decide to stop working and retire for real. The funds you pay in to Social Security increase your benefits whether you are currently collecting benefits or not.
Something that many Social Security benefit recipients often fail to take into consideration is the fact that Social Security benefits count as taxable income. This may not be much of an issue for someone who is living primarily on Social Security benefits, but for someone who is working regularly and earning a considerable amount of money, opting to collect Social Security benefits may be counterproductive, as it could put that person into a higher income tax bracket. Whether you are trying to make a decision about collecting early Social Security benefits at 62 while working or about continuing to work even after having reached full retirement age, remember that, if that extra income means that you end up paying a higher percentage in income tax, you may actually end up with less real income in the end.
If you have saved up funds in a 410(k) or IRA, you are probably not intending to collect those funds until you stop working. Unlike Social Security, which pays until you die, these retirement accounts are limited. If you are receiving Social Security benefits, as long as you are still able to work, it may make more sense to do so instead of tapping into your 401(k) or IRA funds because it will make these funds last longer. However, before continuing to work, make sure that your employer will continue to make any matching contributions even after you have reached retirement age. In some cases, employers stop doing this at a certain point.
Social Security Disability Benefits
Social Security Disability – or SSD – is a program that extends Social Security benefits to disabled people regardless of age. Like normal Social Security benefits, the amount you get from SSD is dependent upon how much you put in. If you are receiving SSD benefits before the age of 62, these benefits are coming under the assumption that you are unable to work. Therefore, if you work and receive a reasonable amount in wages (currently at least $720), you cannot receive SSD. However, the Social Security Administration does allow you to continue receiving SSD benefits for a temporary period. Once this temporary period has passed, you must either stop working or stop receiving SSD benefits. (If you reach retirement age while receiving SSD benefits, those SSD benefits become normal Social Security benefits, in which case you can keep working anyway.)
Making The Decision
Once you have weighed all of the financial variables, in the end, the decision of whether or not you will simultaneously work and receive Social Security is completely up to you. For some people, even when there is little financial incentive, working after retirement is something that they choose to do because remaining active in this way makes them happy.