Guido's Weekend Financial Wisdom: Can I Work While Collecting Social Security?

 

 

If you need extra income during retirement or if you find that a retiree's life is boring, you may want to consider working. However, be aware of the effect that working during retirement has on your Social Security benefits. The Social Security Administration gives you the opportunity to work and receive retirement benefits so long as your earnings do not exceed the annual earnings limit, a limit that applies only if you are under normal retirement age.

 

After you reach your normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. In 2016, you can earn up to $15,720 if you have not yet reached normal retirement age (unchanged from 2015). If you earn more, $1 in benefits will be withheld for every $2 you earn over that amount.

 

However, a special limit applies during the year in which you reach normal retirement age (up to, but not including, the month you reach normal retirement age). In 2016, this limit is $41,880 (unchanged from 2015). If you earn more, $1 in benefits will be withheld for every $3 you earn over that amount.

 

 

It might seem like a good idea to always keep your earnings below the Social Security Administration's limits. However, there may be times when you might want to consider taking a job where your earnings exceed those limits.

 

While you are subject to withholding for your higher earnings, your overall income may be greater because of those same higher earnings. Furthermore, because you pay Social Security taxes when you work, Social Security reconfigures your benefits to take into account the extra earnings.

 

Phillip, age 63, receives $1,000 in monthly Social Security benefits for a total of $12,000 per year. In 2016, Phillip takes a job that pays $27,720 per year, $12,000 over the annual earnings limit of $15,720. Social Security withholds $1 for every $2 that Phillip earns over the limit or $6,000. Phillip still receives $6,000 from Social Security ($12,000 - $6,000 = $6,000). He has a total income of $33,720 ($27,720 in earnings + $6,000 in Social Security). Although he has lower monthly Social Security benefits, Phillip's overall income is greater than it would be without the job because of his higher earnings.

 

If you earn other income during the year, then you might have to pay income tax on part of your Social Security benefits if your total income exceeds a certain base amount.

 

 

If you are retired, you might still be enjoying the tax-deferred status of your investments held in retirement plans. However, if you have a traditional IRA, you are required to begin taking required minimum distributions for the year in