10 Odd Social Security Rules and Practices

10 Odd Social Security Rules and Practices

Ask Bob: What Impact Does a Paycheck Have on Social Security Benefits and Taxes?

The retirement earnings test applies only to people below normal retirement age (NRA). Social Security withholds benefits if your earnings exceed a certain level, called a retirement earnings test exempt amount, and if you are under your NRA.
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Question

I will be 68 years old next week and work full time. I would like to continue to work full time for a while longer. If I start to take my Social Security benefits in the next three months and continue work full time, can I take both Social Security and receive paychecks? Also will I be taxed on Social Security? I’ve heard different stories and don’t know what to believe.

Answer

Working into your late 60’s, or even longer, has many advantages, says Jim Miller, CFP, president, Woodward Advisors. There is of course the intellectual stimulation and professional benefits, but there can be substantial financial upsides as well.

“You’ve already reached one important milestone for Social Security purposes, which is waiting to collect benefits until you are past your Full Retirement Age (FRA), which was age 66,” he notes. “Waiting to collect beyond FRA entitles you not only to your full Social Security benefit, but an 8% credit for each year you delay collecting, all the way until you reach age 70. Additionally, the fact that you are still working means those earnings will count towards your benefit formula and potentially lead to a higher lifetime Social Security benefit. So, nice job!”

Related to working and beginning to collect Social Security, the one pitfall some folks get caught up in relates to the earnings penalty for working and collecting early, he says. No penalty for you to worry about since you delayed collecting beyond the all-important FRA milestone.

The one potential downside of working and beginning to collect Social Security for you relates to taxes, Miller notes. “In short, yes Social Security benefits are taxable and add to your overall income picture.”

If your combined income (Social Security calculates "combined income" by adding one-half of your Social Security benefits to your other income) is between $25,000 and $34,000 (or $32,000 and $44,000, if filing jointly), you may have to pay taxes on 50 percent of your benefit, he explains. If your income is more than $34,000 (or $44,000 if filing jointly), then you may have to pay taxes on up to 85 percent of your benefit.

“You’ll want to consult your tax advisor on the specifics,” Miller adds, “but taxes are likely a consideration when assessing whether you should turn on your Social Security benefit now or wait a bit longer.”

Assistant editor Kim McSheridan assisted with this report.

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Email Robert.Powell@maven.io


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Question

I will be 68 years old next week and work full time. I would like to continue to work full time for a while longer. If I start to take my Social Security benefits in the next three months and continue work full time, can I take both Social Security and receive paychecks? Also will I be taxed on Social Security? I’ve heard different stories and don’t know what to believe.

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