It's no secret that too many people are falling back on their retirement plans. According to a study by GOBankingRates, 56 percent of Americans have hidden less than $ 10,000 in their retirement funds, and of those, one in three has not saved anything.
The fact is that many people need to think about retiring at least part-time work. In fact, 74% of Americans say they want to work beyond retirement age after a Gallup survey. This does not necessarily have to be a bad thing (after all, you can always take on a part-time job that you've always been curious about, but you've never had the time to try it while working on your career), but it's important to Understand how work during retirement will affect other parts of your financial life ̵
Social security is a fantastic benefit for people whose savings may not be the way they would feel when they retire. But if you continue to work after claiming social security, you may experience a shock if your performance check is lower than expected.
The pros and cons of working in retirement
When you work in retirement Your social security benefits may be (temporarily) reduced if you meet two conditions:
- You have pension rights before reaching full retirement age (FRA) or the age at which you receive 100% of the benefits you are entitled to.
- You earn more income than the annual limit set by the Social Security Administration.
This means that the first step in determining whether to receive a reduction in benefits is to identify your FRA. Your FRA is between 65 and 67, depending on the year you were born, and you can claim social security benefits from the age of 62.
Then you need to see if your income exceeds the threshold. If you do not reach your FRA in 2018, the limit is $ 17,040. For every $ 2 you earn above this limit, $ 1 will be deducted from your social benefits. For the year you reach your FRA, the annual income limit is $ 45,360 and the Social Security Administration only counts your earnings up to the month you reach your FRA. For every $ 3 you earn above this limit, your benefits will be reduced by $ 1.
Once you reach your FRA, your benefits will no longer be reduced and the Social Security Administration will recalculate your benefits for the months or years that you have received smaller checks. You will receive an increase in your benefits that you will theoretically pay back for the forfeited benefits throughout your life. For example, if your benefits have been cut by $ 3,000 a year for three years, you still qualify for the $ 9,000. Once you have reached your FRA, the Social Security will adjust your checks so that you will receive back all $ 9,000 until you reach your life expectancy. (Of course, if you do not live up to your life expectancy, some of those decayed benefits will be lost forever.)
Estimating Your Social Security Benefits: An Example
Find out how much your benefits are being reduced (or if they are at all) reduced) may sound like a complicated process, but it's easier than it looks.
For example, let's say you retire at the age of 65 and claim social benefits and your FRA is 67. Suppose you are entitled to $ 1,200 per month (or $ 14,400 per year) in benefits, and you earn $ 55,000 per year
Since you have not yet reached your FRA, your benefits will be reduced by the age of 65 and 66, because you earn more than $ 17,040. The amount you earn is $ 37,960 over this limit, so your benefits will be cut by half that amount or $ 18,980. Since you are only entitled to $ 14,400 per year in benefits, this means that you have retained the full amount of benefits this year.
In this scenario, it may be best to avoid using social security at all. You probably earn enough to pay the bills, and postponing your claims until you reach your FRA can give you a permanent boost in performance. Not only do you earn extra income by continuing to work after you reach retirement age, you also get fatter social security checks.
In the year you reach your FRA, your achievements will look a little different. Let's assume you will reach your FRA in November, and earn $ 47,000 during work from January through October. That would only put you $ 1,640 above the $ 45,360 annual profit limit. Since your benefits will be reduced by $ 1 for every over $ 3 amount, your benefits will be cut by $ 547 this year, giving you $ 13,853.
Once you reach your FRA, your benefits will not be reduced any more. How much do you earn at work, and do you also receive customized checks that take into account how much you have deducted since you worked.
Working in retirement may not have been part of your original plan, but for many Americans who fall back on their savings, it is a necessity. The bad news is that you may see your benefits reduced by a few hundred or a thousand dollars a year. The good news is that you can get the money back once you've reached your FRA – and the extra money you have. Earning through the work will certainly not hurt.