While the aging population in the United States looks forward to retiring, for many achieving that goal has become increasingly more challenging. Many individuals dream of one day, relaxing, taking up a hobby, getting involved in some type of activity, or traveling. After having spent years working, they deserve it.
Some retirees want to work after retiring. For them, getting out of the house and staying productive fills a void. On the other hand, many older Americans head off to a part-time job after completing a 40-hour workweek because they need to. Obviously, that wasn’t part of the overall plan. Regardless of your situation, it’s important to understand the possible implications.
As one financial planner explained, it’s not uncommon today to see people working at the age of 70 and older. Especially for individuals who’ve spent their entire lives in a professional career, a part-time job gives them a sense of purpose and value.
As cited by the Bureau of Labor Statistics in 2017, 54.7 percent of individuals between the ages of 60 and 64 held down a part-time job. That percentage is roughly half of the people in this age category. For those between 65 and 69 years old, the numbers dropped for 2018 but still came out to 31.2 percent.
If you go back to work following retirement, whether for personal fulfillment or financial stability, you need to understand how the extra earnings could impact other aspects of your finances. Keep in mind that there are multiple reasons why working at least part-time makes perfect sense. Even so, before making that decision, it’s essential to know what that means to you from a financial perspective.
Social Security Benefits
Although you can start taking your Social Security benefits at the age of 62, the longer you wait, the more money you’ll likely get. In other words, waiting to take your benefits until full retirement age yields the highest return.
One important note – the US government considers full retirement age for 2019 as 66 years and four months. However, for individuals who turn 62 in 2019, that changes slightly to 66 years and six months. According to the current law, the full retirement age will increase by two months every year until reaching 67.
What happens if you opt for your Social Security benefits before reaching full retirement age? If you’re still employed or decide to go back to work after retiring, there’s a chance you’ll receive less money from the government because of your wage income. For example, receiving monthly checks early will limit the amount of money you can earn from working without impacting your benefits. Last year, that amount capped out at $17,040. If you make more than the current cap, your benefits will decrease by $1 for every $2 earned.
The following are a few additional points to consider.
- At full retirement age, you can earn as much money as you want without any effect on your Social Security benefits.
- If you take your benefits early while working, but you reach full retirement age in 2019, the government will deduct $1 from your benefits for every $3 earned over $45,360.
Something else important to note is that earning more income could increase your Medicare costs. Because you’ll end up in a higher tax bracket, the government will consider you a higher income earner. In that position, you’ll have to pay additional Medicare surcharges.
The surcharges include Medicare Part B for outpatient services and Part D, which is for prescription drug coverage. Extra Medicare surcharges begin for individuals who earn more than $85,000 and married couples with a combined income of $170,000. Simply put, if you keep working as a professional, more than likely, you’ll have to pay higher Medicare costs. Knowing that, you can make the right decisions as a way to possibly avoid the extra payout.
Running Scenarios On A Part-Time Job
Sometimes it is difficult to make the decision as to when to take Social Security or if a part-time job is even necessary in retirement. This is why everybody should have a retirement plan in place. For do-it-yourself types, there is a retirement planning application called WealthTrace that allows you to create a retirement plan yourself. It has the power of planning software that advisors use so you can run a lot of different what-if scenarios.
I used it to find out how much of a hit a typical person would take if he or she was working part-time and took Social Security at age 62. The results showed that this person would have nearly $50,000 less saved at age 70 if he or she did this. It made it pretty clear that rarely, if ever, should somebody take their Social Security early if they are still working and making over the $17,040 limit.
The Bottom Line
The takeaway from this article covers several key points:
- Your full retirement age, whether 66 or 67, depends on the year you were born.
- If you take your Social Security before reaching full retirement age, you’ll experience a temporary reduction in benefits when earning over $17,040.
- Once you enroll in Medicare, there’s a chance that any extra income could trigger a surcharge for both Part B and Part D.
- When you reach 70.5 years of age, it’s critical that you pay attention to the mandated minimum distributions from all retirement accounts.
By working with a professional financial planner, you can set up your retirement for the best possible outcome. Whether you want or need to work part-time after retiring, an expert can answer all of your questions and provide guidance to help you make your financial decisions.