Work beyond retirement age can pay

Roger Wohlner

The rules surrounding your Social Security benefits can be confusing. And the topic of collecting benefits while you’re still working can add to this confusion.

There are many reasons to work into retirement while drawing Social Security benefits. Here are some important details to know if you’re working and collecting your Social Security benefits, or considering taking them.

When you can claim Social Security benefits: You’re eligible to claim your Social Security benefits as early as age 62. The full retirement age for people born before 1960 is 66; it rises to 67 for people born after 1960. Your Social Security benefit level maxes out at age 70.

Taking your benefit at age 62 results in a 25 percent lower payout than if you waited until your FRA, if it’s 66. It’s 30 percent lower if your FRA is 67. Claiming your benefit at age 70 results in an 8 percent annual hike in the benefit for every year you wait between your FRA, if it’s age 66.

There’s no one right answer here as to when to claim your Social Security benefits. Factors like your income needs and life expectancy come into play. In addition, there are timing factors to consider for married couples about when each should claim.

Your benefits can still increase: People who are working past age 60 and beyond, or after they file for benefits, often ask whether their earnings increase their Social Security benefit, said Mike Piper, CPA and author of “Social Security Made Simple.” “The answer is yes,” he said. “Your primary insurance amount gets recalculated every year, based on any new earnings that you’ve had. So if your new earnings are included in your 35 highest wage-inflation-adjusted years, your benefit would go up.”

Lower earnings won’t decrease your benefits: For people who are still working but earning less money, which is common for semi-retirement, many wonder if that will lower their Social Security benefit, Piper said. “The answer is no, additional years of earnings won’t cause your benefit to decrease, no matter how low those earnings are,” he said. “If a new year of earnings isn’t in your 35 highest, it simply won’t be included in the calculation.”

Earned income and benefit reductions: If you’re working and collecting Social Security benefits, it’s important to understand how your earned income can affect your Social Security payments. “Your earnings can cause a reduction in your Social Security benefits now, but you’ll get credit for the reduction later,” said Jim Blankenship, financial adviser and the author of “A Social Security Owner’s Manual.”

“For every $2 over $15,720 that you earn from a job or self-employment (according to 2016 figures), your Social Security benefit will be reduced by $1,” he said. “Withheld benefits are credited back to you once you reach FRA.”

This reduction applies to income earned from employment and self-employment. It does not apply to income from investments or other nonemployment sources of income. Once your reach your FRA, there are no reductions in your benefit due to earned income.

Taxes on earned income: For people who continue to work after their retirement age, payroll taxes such as income taxes, Medicare and Social Security will all continue to be withheld from your pay. This remains the same regardless of your age and whether or not you are drawing a benefit from Social Security.

Your benefits could be taxed: Based upon your income, your Social Security benefits could be subject to federal taxes. Social Security uses an income measurement called “combined income” to determine how much of your benefit could be subject to taxes. Combined income is calculated as adjusted gross income plus non-taxable interest income — from municipal bonds, for example — plus half of your Social Security benefit.