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How will your part-time income affect Social Security?

Many Americans expect to continue working past traditional retirement age.

By MSN Money producer Dec 30, 2013 10:54PM

By Joanne Cleaver, U.S. News & World Report U.S. News & World Report

Many people would consider Margaret Haapoja's post-retirement career ideal. At 71, she has continued her longtime career of writing gardening articles published in newspapers and magazines. What's not to love about getting paid for a hobby you enjoy, covering a topic on which you are an expert?

Image: Senior man sitting at desk with computer © Andersen Ross, Brand X Pictures, Getty ImagesThe weed of tax complications, for one. Haapoja built her retirement savings on her writing income, and now her writing income is a factor that she and her husband must take into consideration as they calculate how much they can withdraw from her individual retirement account. They also have to look at how her income affects their net take from Social Security. "It doesn't discourage me from taking work," Haapoja says, but the situation is more complicated than she had anticipated.

More Americans than ever expect to continue working past the traditional retirement age. The 2013 Wells Fargo Middle Class Retirement study, which surveyed 1,000 middle-class Americans, found that 34 percent of this group thinks they will have to work until age 80.

But when Social Security benefits are added to your income stream, you need to factor in a fresh set of tax considerations, as Haapoja has learned. After a certain point, new earnings can push you into a tax bracket that effectively erodes some of your Social Security income, which means you might not capture the net gain from working that you had hoped. If you're close to retirement, you need to bear this in mind as you tee up an encore career.

The first step to understanding how your post-retirement earnings might pan out is to find out exactly when the Social Security Administration lets you call yourself retired. The full retirement age has been gradually rising, so even for younger baby boomers, it is no longer 65. Before your "full retirement age," any Social Security benefits you draw might be offset by an "earnings test."

Every year past your full retirement age, you are no longer subject to the annual earnings test, explains Kia Anderson, a Social Security Administration spokesperson. That is because Social Security benefits are based on your earnings history, not on your total retirement income.

The whole point of working in retirement is to add to your total income, says David Littell, who teaches retirement planning to financial professionals at The American College of Financial Services. But depending on how much you earn and related taxes, "You might not benefit tremendously from the combination of work and Social Security benefits," he says.

If you have a healthy income by Social Security standards, and also from earnings and investments, you will cross a threshold and will have to pay taxes on part of your Social Security benefits, Littell explains. How much income is too much? That is a moving target called "provisional income." Too much provisional income and up to 85 percent of your Social Security benefits are taxable. "You earn a dollar more, and that costs a dollar of your Social Security," up to a point, Littell says.

The tax fun doesn't stop there. Here are additional tax factors that affect working retirees, according to financial planners:

  • Social Security taxes will continue to be deducted from your income, regardless of the Social Security benefits you are also drawing.
  • If you are self-employed, you must pay both the employer and employee portion of FICA. Although the employer portion is tax-deductible, that only eases the pain.
  • Some states tax Social Security benefits and some do not. Where you live affects your net take from the benefits.

Fortunately, there's a way to sidestep some of this. You can work until age 70 to maximize your earnings history (thus boosting the basis for your Social Security benefits) and saving more for retirement. If you can, you can also front-load encore career income by moonlighting while still drawing a salary. Then you can see how your post-retirement career will actually work out. This strategy is recommended by both Littell and Christine Fahlund, a senior financial planner with T. Rowe Price.

By taking your Social Security benefits at the last possible point -- age 70 -- you will capture 8 percent more annually, Fahlund says. That extra amount can help cushion market fluctuations that might affect the value of your other retirement accounts, she points out. "Social Security is not subject to the market. The amount you get is predictable and is determined by formulas. If you retire at age 70, it's a higher baseline," she says.

Essentially, you work a few years longer and get much more. That means you will have to earn that much less from your encore career, which would mean you have to be open to the possibility of working more for personal satisfaction than for cash flow.

"Then, working becomes more of a value judgment: Is this a hobby business, or can you charge less for your work?" Fahlund says. "You have the chance to downshift."

More from U.S. News & World Report:

Tags: taxes


Dec 31, 2013 5:20PM
The problem with this theory, and I mean theory, you never get a chance to rest until you in the ground. Remember when you could draw SSN at the age of 59 and received full benefits at 62?  Now the norm is 62, but wait until 66+ to get Medicare.  And if your still kicking, wait until age 70!  And hopefully, you will croak at 75.  Now these idiots are talking about raising that age to say 72 for full benefits.  And if you're still kicking, at 77 you can max out. All along, these thieves raided the system for their pet projects. They stole your money that you were forced to give them over the years. There main intentions is that they truly hope you die before reaching SSN age.  It's just one giant pyramid scheme.  The only one who gets money is the ones at the top!  This is what you get with these lying crooked politicians.  And make no mistake, they're corrupt on both sides of the isle.
Dec 31, 2013 4:34PM
This assumes that you can work till your 70. That your health holds out, that the place you work, won't push you out the door for being too old, even though they will deny it. If you lose your job in your 60's who will hire you? We need to learn to live within our means in this country. Pay off the mortgage early, save to buy things vs. credit cards. You never know when you will get the ax, and trust is a lot easier knowing the homestead is paid off, and you have no debt.
Dec 31, 2013 4:24PM
The whole drift of this is, the government does not want you to collect social security-just pay into the system ---they are bankrupting the elderly.  The government s working diligently to establish only three classes of people here in the U.S..  The Wealthy, those that dictate, and buy the government and take everything and help create the loopholes, the POOR, those that work for the wealthy and the IMMIGRANTS who get what the poor had to pay for by working for the wealthy that control the government.  

Dec 31, 2013 9:57PM
What I find so incredible, is that so many who posted on this thread, are ignoring so many of those who "Scam" the system and get Social Security Disability for "fake" back problems, being way overweight, mentally incompetent, etc. ( and all WAY under the age of 50, much less 62 )  .  Who pays for that ? Many of them never worked an honest day in their life !!!

Dec 31, 2013 4:56PM
Most of these articles assume that you make at least 6 figures and have solid investments as well as a business on the side. In other words, you have a silver spoon stuck so far up your butt that what you wipe is better than most people eat. Ya, that's gross but the point is made. Also, how many of you will live to be 90? I mean 90!! Really?

The only way for "real working people" do survive is to make sure that by age 62 for most, all of your debts are paid off. Cards, cars, loans and home. At that point, you can keep working but if you lose your job, you could always fall back on SS and any retirement plans you now have. To me, 62 is the magic number because at that point I can go out if I want or needed to.

Dec 31, 2013 9:04PM
I retired at 62 on SS and a small pension. Id like to get a part-time job after the SS penalty ends. People who think they can work until they are 80 are fools! Late 60s is pushing it unless you have a really cushy job. Most men die between their 60s and 70s, and I don't intend to drop dead at work!
Dec 31, 2013 5:00PM
As stated be sure to have EVERYTHING  paid off by the time you hit 62. I retired at 62 and am working part time in the summer and live in Texas in the winter and drawing my social security and unemployment and my wife and I are having the time of our life. We don't live beyond our means and don't have to take any of our money in our IRA's or 401K to live on. For anyone to work until 66 or 70 is just plain STUPID. As stated that's what our government wants us to do and never draw one cent of all the money you and your employers paid in over all of the years you worked.
Dec 31, 2013 9:21PM
you must be kidding, work till 70??? who's ideal?? I'll most likely be DEAD.  Will collect as soon as possible.  That Simple!!!
Dec 31, 2013 12:25PM
It's one thing to work and get paid for a hobby or the do nothing congress, it's another thing altogether when it's real work.
Dec 31, 2013 9:05PM
I'm not greedy, I just want the money back you took from me, but I want it now!
Dec 31, 2013 9:01PM
The Democrats should never have imposed taxes on social security.
Dec 31, 2013 9:51PM
I find it very funny that its always the guys at the top are always the ones that think you should take a cut in your pay and or benefits, they would NEVER think for a minute of taking a cut in anything. And while there at it they will be thinking about how hard they worked at saving the company all that money by screwing they guys at the bottom and give their selves a raise. Kind of like robin hood in reverse.
Dec 31, 2013 8:01PM
Do the math  retire at 70 and you giving the government  96 checks of your retirement that you worked all your life for!!!!!!!!!!  Face it you don't live forever, your on borrowed time when you turn 60!!!!! I see a lot  of people dying at a young age who have paid into the system and our government wants you to wait till your 70!!!!!!! retiring at 62 and even i only get one check the government didn't screw me out of!!
Dec 31, 2013 8:57PM
Who is going to incarcerate the politicians for conducting history's biggest Ponzi scheme.
Dec 31, 2013 5:56PM
Retired at 58, owe nothing and enjoying life to the fullest.
Dec 31, 2013 9:47PM
All the pukes in Washington complain that Americans don't save enough, but they don't get rid of these senseless rules and regulations that IMPEDE Americans from saving, especially people approaching seniority.  I guess when you've made it as cushy as you have for YOURSELF in DC, you can stick your head up your **** and wait for YOUR retirement.
Dec 31, 2013 6:06PM
My mother who is 62 took her husbands SSI benefits after he passed. They are a whopping $800 per month. She still works part-time and SSI told her that the max she can earn is $15,000. If she earns the max her total income will be close to $25k. Lucky for her she lives in 62 and older community and her rent is based on income minus living expenses.
Dec 31, 2013 5:06PM
I am thankful I work on computers for a living. This way I could work from my death bed remotely so I can afford to die.
Dec 31, 2013 5:03PM

"34 percent of this group thinks they will have to work until age 80"


Great! That means I can take early retirement, as planned, while the rest of you suckers keep working & paying into the system. Thanks, guys!

Dec 31, 2013 5:01PM
Social Security is a help but if you want to stay poor,it the best thing to have.You have to have other avenues of income,if you want to have a fairly good retirement,try to stay Healthy without that it all out the window Happy 2014
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