Sometimes retirement isn’t golf courses, touring Europe, or keeping the grandchildren for the summer. Many seniors take up a new profession like writing a book, serving as a coach or board member, or making their hobby a small-business venture. This trend is even more prominent among those who retired during the pandemic. Given the toll inflation is taking on fixed-income living, it’s no surprise that some seniors are considering returning to work.
If you’re thinking about unretiring, you need to consider how you’re going to handle your Social Security benefits. If you’ve applied for Social Security before full retirement age, your benefits are reduced permanently. If you wait until your full retirement age, you will receive your full benefit, and if you delay claiming benefits, you can earn delayed retirement credits that will increase your benefits. It’s a gamble: receive less for more years or receive more for your later years. A financial adviser can estimate a “breakeven” point, but since the variable is your life expectancy, accuracy cannot be guaranteed.
If you return to work before full retirement age, your benefit is further reduced by $1 for every $2 earned above $19,560 (2022). In the year you reach full retirement age that “penalty” is reduced to $1 for every $3 earned above $51,960. Once you reach full retirement age, Social Security will recalculate your monthly benefit to restore the benefits deducted over the months or years you exceeded the earnings limit. At full retirement age, your benefits are not reduced by your earned income.
One option is to suspend your benefits until you quit working again. However, if you are younger than full retirement age, you must do this within 12 months of starting Social Security, repay all benefits received and repay any Medicare premiums that were deducted from your benefits. That could turn into an expensive option. However, if you’re full retirement age or older, you can suspend benefits without having to repay what you’ve received. The advantage to doing this is earning the delayed retirement credits—receiving more in benefits when you re-retire.
Before you make critical changes, our advice is to look at the big picture. Following our Ten Year Rule, we would recommend placing money needed within the next 10 years in fixed-income investments. If you could reduce or eliminate the need to pull money from your portfolio by taking Social Security in addition to your earnings, you can push your investment time horizon out a few more years, keeping more of your portfolio invested for growth.
Furthermore, if a spouse or dependent child can claim Social Security benefits based on your work record, they will not be able to receive benefits during the time that you suspend your benefits. For those couples who can claim spousal benefits, you need to consider household income before suspending your benefits. Suspended spousal benefits do not earn delayed retirement credits.
If you are considering returning to work once you’ve started your Social Security benefits, consider working with a financial adviser to run a cost-benefit analysis that takes into account your retirement portfolio, other sources of income, health benefits through your employer, tax-advantaged savings plans you may have access to, and your overall tax liability.
If you have questions on how to begin shifting your asset allocation for retirement, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the August 20, 2022 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
