Working while on Social Security

Working while on Social Security

June 05, 2019

U.S News & World Report Money recently asked me for my thoughts on what happens if you work while receiving Social Security. There are many reasons why someone may still want to work even after receiving social security benefits. Maybe you took an early retirement or maybe you’re just bored or maybe you really need the money.

Whatever the reason is you should still consider the effects of working while receiving Social Security benefits will have on your bottom line.

If you have reached full retirement age you can earn as much as wish without it affecting your Social Security benefits. However, if you have not reached full retirement age and are collecting Social Security benefits then you will be subject to income limits.

Full retirement age for someone who turns 62 in 2019 is 66 ½, and for anyone born after 1960, full retirement age is 67 under current law.

Currently, if you make more than $17,640 for 2019 then Social Security will deduct $1 from your benefits for each $2 you earn above the threshold. On the other hand, since you’re working and paying into Social Security again there is a chance that when they recalculate your earned income based on your lifetime earnings at full retirement age you could get an increase in benefits.

Another thing to consider is how extra income will affect how much of your Social Security benefit will be taxed.  

When President Roosevelt enacted the Social Security Act of 1935 the thought that someday the government would tax your social security benefits was nowhere on the horizon. 

But over the years we’ve seen social security income slowly become partially taxed using what the IRS calls a provisional income measure. If your income goes above certain thresholds, then this would determine how much of your social security benefit would be taxed.

Currently, for 2019 tax year, a single individual filing with a combined income of $25,000 to $34,000 must pay income tax on up to 50% of their Social Security benefits. For married couples filing jointly the threshold is $32,000 to $44,000.

Keep in mind that you will never pay taxes on more than 85% of your Social Security benefits so they say. Also, income derived from investment, rental properties, pensions, and distributions from qualified accounts are all used to calculate your provisional income.

However, if you’re 70 ½ or older and being forced to take RMDs from and IRA which is a distribution you can move those funds into a type of deferred income annuity called a Qualified Longevity Annuity or QLAC.

The IRS only requires RMDs to be taken in a QLAC after payments begin. You can defer RMDs to age 85 using this type of annuity thus lowering your provisional income while you’re working.