Do I lose money if I work and take Social Security?
Possibly!
Some Social Security benefits may be taxed as ordinary income. It is important that you understand how this works and how to reduce the impact.
You will be subject to an “earnings test” if you take Social Security benefits prior to your full retirement age (FRA) and you are still working. For every $2 in benefits you earn over the limit, you forfeit $1 in benefits (prior to the year you hit FRA). The earnings limit is $15,720 in 2015. Normally, starting benefits early is not recommended unless it is needed for cash flow.
Once you are past FRA, the earnings test disappears and you can make as much money as you want with no impact on benefits.
There is some good news.
Any benefits forfeited because earnings exceed the limit are not lost forever. At FRA, Social Security will refigure your benefits going forward and take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year of benefits due to the earnings test, at age 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits will be 20% rather than 25%.
Your decision of when to claim your Social Security benefits is important and will impact your retirement planning. Many factors impact your decision. You don’t want to do this alone. Discuss it with a financial professional who can help you weigh all the factors. We can help you with this decision.
As always we are here to help create your best 2nd Half.
Contact us by email or call the office at (719) 630-0600 to set up an appointment.
See the index showing all of our Social Security Strategies and Tips.
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1-419800 9/16/2016
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All illustrations are hypothetical and are not representative of any individual’s specific situation.
