If I turn 70 years old and begin collecting Social Security benefits and continue working, will my income impact the calculation of my benefits?
I will turn 70 years old in mid-2019. I then plan to collect Social Security. As I am still working (self-employed), will my income impact the calculation of my benefits?
I am not sure that I correctly understand the intent of your question, since I interpreted it differently than others who offered responses.
As other responders have indicated, if you keep working at a higher enough salary, this may increase your lifetime earnings average, and therefore increase your retirement benefits in future years.
However, I thought that you might be asking about the penalty for working while receiving SS retirement benefits. Because you are over Full Retirement Age, that penalty would NOT apply to you.
In case folks who are under Full Retirement age might read this, I will give a brief explanation of the penalty:
Before reaching full retirement age, the money you earn over a certain amount each year may reduce your Social Security retirement benefits. For the year 2018, this limit on earned income is $17,040 ($1,420 per month). If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit. Once you reach full retirement age, there is no limit on the amount of money you may earn and still receive your full Social Security retirement benefit.
Here is a link to additional information on the SS website; https://www.ssa.gov/planners/retire/whileworking.html
Hope this provides some clarity!
Once you hit full retirement age, your income will no longer reduce your Social Security benefits. As a result, you will receive your full Social Security check each month. Earning an income, however, can impact the taxability of your Social Security benefits.
For those living exclusively off of Social Security in retirement, their Social Security benefit is generally tax-free. As you earn more income, however, your Social Security will begin counting as taxable income. You can have between 50% and 85% of of your Social Security benefit taxed as income.
To determine the taxation of your Social Security benefit, start by adding the following numbers:
+ 1/2 of Social Security benefit
+ Non-taxed interest (such as municipal bonds)
- If the total of these three items is below $25,000 your Social Security is tax free. ($32,000 if filing Married Filing Jointly)
- If the total is between $25,000 and $34,000 you'll need to add 1/2 of your Social Security benefit as taxable income ($32k to $44k MFJ)
- If the total is above $34,000 you'll need to add 85% of your Social Security benefit as taxable income (above $44k MFJ)
Once you reach full retirement age there is no reduction in Social Security benefits because of earned income. However, there is a tax trap. Your earning level may increase the percentage of Social Security benefits subject to tax. Adding insult to injury, whether you need the money or not, you may have to start taking required minimum distributions (RMDs) from your retirement savings (unless you have your own employer qualified plan, like a 401(k) or 457) , which would add to provisional income.
Provisional income is adjusted gross income plus tax-free interest plus half your Social Security benenfits. That sum determines how much of your Social Security is taxable:
Here is the most succinct discussion of those income levels and resulting benefits taxation:
You may want to do strategtic Roth IRa conversions (up to your current tax bracket limit) between now and 2025 in this historically low tax environment. You might also consider rolling some of your retirement funds into a QLAC (qualified longevity annuity contract) to delay RMDs on that portion of your retirement funds until 85. The limits are quite low: The lesser of $130,000 or 25% of your retirement account balances (as of the end of the previous year).
Yes. You will pay more tax on your Social Security benefits when you earn more money, since more of your benefit will be subject to tax. And ironically, you will continue paying self employment taxes into the Social Security system, even though you will no longer be accruing additional benefits. (it is possible your benefit could be increased based on additional income history - but this is likely to be insignificant if you already have a litetime of earnings history).
When you reach full retirement age(depends on when you were born), your earnings no longer reduce your benefits, no matter how much you earn. For most people, full retirement age is 65, 66, or 67. At age 70, feel free to collect and to keep working as long as you like.