Social Security Benefits: Key Considerations before You Make a Decision
Most people don’t plan on slowing down when they retire and many individuals continue to work in some capacity — whether that means continuing a full-time profession, consulting part time or turning a hobby into a second career. In fact, 30% of retirement income for those over age 65 comes from some type of work.1
Your Social Security and retirement decisions typically go hand in hand. Before you decide when to start your benefits, consider the following information. Social Security recipients who are working and who are under full retirement age are subject to a reduction in benefits if they have earned income over certain limits.
Earnings Limit - 2013
- Prior to the year you reach full retirement age, you can earn up to $15,120 per year with no reduction in benefits. For every $2 you earn over $15,120, $1 is withheld from benefits.
- In the year you attain full retirement age, you can earn up to $40,080 with no reduction in benefits. For every $3 you earn over the earnings limit, $1 is withheld from benefits.
- After you reach full retirement age, there is no reduction in benefits based on how much you earn.
Earnings include wages and self-employment income. Interest, dividends and other unearned income are generally not included in these limitations.
Taxation of Social Security Benefits
Regardless of when you take Social Security benefits, if your combined income2 is at a certain level ($25,000 to $34,000 if single; $32,000 to $44,000 if married), up to 50% of your Social Security benefits could be subject to income tax.
If your combined income is above $34,000 if single ($44,000 if married), up to 85% of your benefits could be subject to income tax.
Taxes shouldn’t affect when you decide to take your Social Security benefits. However, it’s important to understand how your benefits could be taxed when determining your after-tax income in retirement. Along with your financial advisor, be sure to discuss these topics with a qualified tax professional.
1 Income of the Aged Chartbook, Social Security Administration, 2008.
2 Generally, your combined income is the sum of your adjusted gross income plus tax-exempt interest plus one-half of your Social Security benefits.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. This information is a summarization and should not be depended upon for other than broadly informational purposes. Please consult your attorney or qualified tax advisor regarding your situation.