March 29, 2011 — One of the persistent myths about retirement is that it doesn’t pay to work after you start collecting social security. The thinking goes is that because if you start collecting before your full retirement age your benefits are reduced, and because you will be taxed on a portion of your benefits if your overall earnings pass a certain threshold, you will be worse off for working.
A very helpful article from WSJ MarketWatch Editor Robert Powell, “Taxing Problem: How to Keep Working and Collecting Social Security“, clearly explains why this thinking is off base. As Michael Kitces, editor and publisher of The Kitces Report says in the article “… frankly, I’ve never seen a situation where there was actually a net loss for working.” He goes on to say that by working you bring additional dollars into the household. Uncle Sam gets to keep part of that, and you get to keep part. Everybody is ahead vs. ….
If you start collecting social security before your full retirement age (usually 66, depending on your age), your benefit will be reduced by $1 for every $2 you earn (that goes to $1 for every $3 in the year you reach
full retirement, and the reduction disappears entirely when you hit full retirement”. The income threshold for taxation of your social benefit is $25,000 – if your combined income reaches that level, 50% of your social security benefit will be taxed. That level goes up to 85% when the combined income reaches $44,000.
A recent study from Scarborough Research, “Retire for Hire Study“, found that not only do working retirees have higher incomes and investments, but they are more active and engaged in activities like gardening, the arts, and philanthropy. The study found that about 15% of retirement-age adults are still working.
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For further reference:
When Should You Start Taking Your Social Security Benefits?