Social Security [impact of earnings on benefits]

[capen2468]

Im retired and going to take my social security early at 62 . If I decide to go back to work part time and earn over 17000 a year I will have to pay back 50% of my earnings over 17000. Will I be able to earn more than 17000 when I reach full retirement at 66.5 ? Is that 17000 only earned income ? I get interest and dividents off my investments ,

Also my wife is still working . Would her income impact my social security if we file seperatly ?

[David Jay]

Im retired and going to take my social security early at 62 .

You say this in a very matter-of-fact way. Are you open to a discussion about this schedule?

Would her income impact my social security if we file seperatly ?

Her income will not affect your Social Security payment but it will affect taxation of those benefits. There are very few instances where filing separately is a good strategy. Again, are you open to a discussion about when you should file for benefits?

[HueyLD]

If the op files a separate return from his spouse, every penny of his SS benefit will be taxable.

Not a good idea.

https://www.irs.gov/newsroom/are-your-s ... ts-taxable

As to his other question, here is a link to a SSA site.

https://www.ssa.gov/planners/retire/whileworking.html

Edited: I was too anxious to tell the op not to MFS that I did not provide enough detail. Also to the op: please read the links I provided to educate yourself.

[mptfan]

If the op files a separate return from his spouse, every penny of his SS benefit will be taxable.

Not a good idea.

https://www.irs.gov/newsroom/are-your-s ... ts-taxable

I think your use of the word "taxable" is a bit misleading. It's true that for married filing separately and living together, you get a $0 base amount exclusion from your income, but there is still a limit of how much of social security benefits are taxed, and the maximum is 85%, so not every penny of social security benefits are taxable.

[JoeRetire]

Will I be able to earn more than 17000 when I reach full retirement at 66.5 ?

Assuming that 66.5 is your FRA, then the answer is Yes. Once you reach your full retirement age there is no penalty for earned income.

Is that 17000 only earned income ? I get interest and dividents off my investments

Yes, it's only earned income.

Also my wife is still working . Would her income impact my social security if we file seperatly ?

No.

[capen2468]

You say this in a very matter-of-fact way. Are you open to a discussion about this schedule?

I am open to discussion about taking my benefit early , My wife makes about 70000 a year so I believe some of my benefit will be taxable .

[#Cruncher]

If the op files a separate return from his spouse, every penny of his SS benefit will be taxable.

According to the Social Security Benefits Worksheet, if the separate return filer lived apart from his spouse the entire year, the taxable portion of SS is determined the same as if he were single. But if he lived with his spouse for any part of the year, it is figured differently. [1]

In this case, at most, 85% of his SS will be taxable. But if his other income (OI) is less than half of the SS benefit, less than 85% of SS will be taxed. Here is the formula
Taxable SS = 85% * MIN(SS, OI + SS / 2) [2]
For example:

Code: Select all

 Other
Income    % of SS
% of SS   Taxable
-------   -------
    0%     42.5%
   10%     51.0%
   20%     59.5%
   30%     68.0% [2]
   40%     76.5%
   50%     85.0%
  >50%     85.0%

1. Here is the relevant portion of the worksheet:

   8. If you are:

   • Married filing jointly, enter $32,000
   • Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2016, enter $25,000
   • Married filing separately and you lived with your spouse at any time in 2016, skip lines 8 through 15; multiply line 7 by 85% (0.85) and enter the result on line 16. Then, go to line 17

2. Example for $20,000 SS and $6,000 other income (where 68% of SS will be taxable):

   Code: Select all

   Taxable SS = 85% * MIN(20000,  6000 + 20000 / 2)
       13,600 = 85% * MIN(20000, 16000)

[dm200]

Im retired and going to take my social security early at 62 . If I decide to go back to work part time and earn over 17000 a year I will have to pay back 50% of my earnings over 17000. Will I be able to earn more than 17000 when I reach full retirement at 66.5 ? Is that 17000 only earned income ? I get interest and dividents off my investments ,

Also my wife is still working . Would her income impact my social security if we file seperatly ?

Why take the risk? Can't you wait?

[David Jay]

You say this in a very matter-of-fact way. Are you open to a discussion about this schedule?

I am open to discussion about taking my benefit early , My wife makes about 70000 a year so I believe some of my benefit will be taxable .

Here is the general idea:

1. Your Social Security will be 85% taxable if you file jointly and there will be a direct reduction if you earn more than $17,000 a year. The $17,000 a year limitation on earned income "goes away" at full retirement age.

2. Every month you delay starting your SS benefit increases the amount of that benefit. If you can get by on your spouse's income and if there is the potential for you to earn more than $17,000 it may make sense to delay filing for your benefit. At least for the first year or so to see what your income will be.

Again, you can file at any time (after you turn 62, of course) and get a check the following month, but every month you wait means a bigger SS check for the rest of your life. Some here on BH are actually waiting to age 70 to file to maximize their benefit.

[capen2468]

I think I will be paying about 1300 in taxes next year based off the SS worksheet

I dont think I want to wait to collect SS , I could wait and start taking some IRA distribution or sell some stocks.

Everything is payed for and I get health care through my wife job . I could live off the SS my cash savings and dividents without having to sell or take 401K withdrawls for at least another 5 years . Hopefully my investments will continue to grow during that time . Im about 50/50 stocks and bonds

[grabiner]

Im retired and going to take my social security early at 62 . If I decide to go back to work part time and earn over 17000 a year I will have to pay back 50% of my earnings over 17000.

Note that this isn't a loss. If you lose a year of benefits because of the earnings limit, then your benefits will be recalculated at full retirement age as if you had started at 63 rather than 62.

However, if you are likely to work part-time, and have a spouse who is still working, you might well be better off waiting anyway, as you probably don't need to take the benefit immediately. The longer you wait to claim, the higher your benefit will be, and the higher your spouse's benefit will be if you die first and your benefit is larger than your spouse's.

[FiveK]

I dont think I want to wait to collect SS , I could wait and start taking some IRA distribution or sell some stocks.

Everything is payed for and I get health care through my wife job . I could live off the SS my cash savings and dividents without having to sell or take 401K withdrawls for at least another 5 years . Hopefully my investments will continue to grow during that time . Im about 50/50 stocks and bonds

Or you could defer SS, while converting traditional to Roth and/or taking capital gains at low tax rates.

What is best for you depends on the specifics of your situation. It is probably worth some time for you to assess the actual trade-offs.

[spencer99]

Not sure the OP has provided enough background.


> How realistic is a return to work?

> Spouse's age?

> How long spouse may continue to work?

> Each spouse's projected PIA?

It is possible that their relative ages, earnings, etc may result in OP's claim at 62 with spouse's future delay being reasonable.

S

(Edited for clarity)

[capen2468]

My return to work is not too realistic unless I find a job I enjoy going to . I had a stressful job that I left about a year and a half ago . Im now 10 pounds lighter with normal blood pressure ( was high)

My wife is 57 and will poobably work till she is 66 . She likes working. What is PIA ?

If I take ss next year it will be 22 a year , I have to look at the difference if I wait but I will lose that 22 a year and it will take years to make up the difference

I could do roth conversions and wait which could also be an option but I would also have to cash in some investments , Not sure what is the best way to go . I should probably put everything out there with our incomes investments so I can get some good options

[Austintatious]

Here's a link to Mike Piper's free social security calculator. It's a tool designed to help folks like you and yours decide how they can maximize their Social Security benefits. Of course, there are many factors to be considered besides getting the most money out of SS but this tool can provide very important information relative to making the big decisions.

https://opensocialsecurity.com/

[onthecusp]

+1 on the opensocialsecurity calculator.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum. I retitled the thread for clarity (and capitalized Social Security).

[CurlyDave]

...I dont think I want to wait to collect SS , I could wait and start taking some IRA distribution or sell some stocks.

Everything is payed for and I get health care through my wife job . I could live off the SS my cash savings and dividents without having to sell or take 401K withdrawls for at least another 5 years . Hopefully my investments will continue to grow during that time . Im about 50/50 stocks and bonds

[ quote fixed by admin LadyGeek]

I was faced with this choice at the age of 62 a little over a decade ago. I opted to take the SS at the first possible opportunity. My investments have grown substantially while we lived on the government's money. What is not to like about that?

A lot of people here will try to persuade you to delay taking SS and live on your own money. They say it is a sure thing.

My reply is that my money in my account is the only sure thing I have. CAGR of stocks has been ~10% for about a century. This beats the 8% guaranteed increase of SS benefits.

[spencer99]

CAGR of stocks has been ~10% for about a century. This beats the 8% guaranteed increase of SS benefits.

Dave,

It sounds like you may not agree but do you see how many would not consider an extremely risky/volatile investment as an alternative to almost perfectly secure, COLAed income?

S

[CurlyDave]

CAGR of stocks has been ~10% for about a century. This beats the 8% guaranteed increase of SS benefits.

Dave,

It sounds like you may not agree but do you see how many would not consider an extremely risky/volatile investment as an alternative to almost perfectly secure, COLAed income?

S

A. I understand the argument in favor of waiting to take SS. But what many on this board do not want to see is that stocks are not the "extremely risky/volatile investment" you portray them as -- if they were, the entire premise of this board would be wrong.

B. This used to be a forbidden topic here, but lately the moderators have allowed some discussion of the future depletion of the SS Trust Fund. Based on enacted law and the latest SS Trustee's Report the Trust Fund will be depleted sometime in the 2033-2034 time frame. If the law is not changed, only 77% of current benefits will be available.

AFAIK, speculation on changes to current law is still a forbidden topic, but it is difficult to reconcile the "perfectly secure, COLAed income" description of SS with the SS Trustee's Report. If nothing changes, SS is in for a 23% haircut in about 15 years. This is well within the life expectancy of a current 62 year old.

C. Without getting into the forbidden issue of politics, let me just say that I am a crusty old geezer who has much more faith in my own demonstrated ability to manage my resources than I do in the government's demonstrated ability to manage their resources.

D. Most of the SS calculators and break-even analyses I have seen do not account for any return at all on the private money saved/retained in one's own portfolio when SS is taken early. Properly accounting for this return stretches out the break-even ages, even without without any consideration of the Trust Fund depletion. Mike Piper, in his short book Social Security Made Simple covers this on page 76. Essentially a 5% real return takes the break-even age for 62 vs. 70 as a claiming age to 90 instead of the 81 which is commonly quoted*.

The other aspect of this which is seldom mentioned is that even if one lives past 90 we are not looking at a stark difference. SS still pays something, just less than if taken at a greater age. Throw in the return from whatever personal portfolio is still available, and we may not be needing to break out the recipes for Alpo casserole.

So, the trade-off is a little more complex than we usually consider. A guaranteed setback to a personal portfolio vs. a break-even age I doubt I will live to see.

* Please note that for the OP, currently or shortly 62, both 81 and 90 are ages which are after the projected Trust Fund depletion date.

[vested1]

My return to work is not too realistic unless I find a job I enjoy going to . I had a stressful job that I left about a year and a half ago . Im now 10 pounds lighter with normal blood pressure ( was high)

My wife is 57 and will poobably work till she is 66 . She likes working. What is PIA ?

If I take ss next year it will be 22 a year , I have to look at the difference if I wait but I will lose that 22 a year and it will take years to make up the difference

I could do roth conversions and wait which could also be an option but I would also have to cash in some investments , Not sure what is the best way to go . I should probably put everything out there with our incomes investments so I can get some good options

I agree that you will get better responses if you provide more information. If you haven't already, I would encourage both you and your wife to open an account at https://www.ssa.gov/ which will provide your estimated PIA. PIA stands for Primary Insurance Amount, which is the estimated amount you or your wife will receive at their full retirement age, 66.5 for you.

It is not possible to make an informed decision without knowing your PIA, and how filing early or delaying to FRA or beyond will affect your overall income and taxes. If you want opinions here I would suggest providing both your own and your wife's PIA, the State you live in since most States don't tax SS benefits, your expenses, and all sources of income.

SS benefits are income, not a lump sum, so in my opinion, using "break-even" calculations is less useful than determining the amount needed to meet expenses from all sources, as well as gaining an understanding of survivor benefits and the effect on overall taxation from this point forward, especially once RMD's kick in.

I assume that since you stated that your FRA is 66.5 that you were born in 1957. Using the following link https://www.ssa.gov/planners/retire/1957.html you will see that filing at age 62 will result in a benefit of 72.5% of your PIA. Since you mentioned that your age 62 benefit would be about 22k, that is about $1,833 a month, making your PIA about $2,528 in today's dollars, increasing with future COLA's. If you die before your wife and your PIA is larger than hers (assuming you waited until at least your own FRA to file) ask yourself if you would prefer that she receive about $700 more a month because you delayed. Then ask her what she would prefer.

Be aware that those who are currently delaying, like me, will be the most vocal in advocating a delay, and that those who chose to take it at the earliest possibility will be the most vocal in defending that decision and advocating an early filing. Neither are wrong. You must make your own decision, but wisdom dictates that you should know the impact of every option.

[capen2468]

My PIA is 2580 , At 62 it is 1858

I will lose 100,332 if I wait until Im 66.5 . That 100332 I will need to take out of my investments . It will take over 14 years to make up the 100332 I will lose . I also will lose some return on my investments ( hopefully ) if I cash in 100000 .

If I wait the advantages I see are I could convert more money into a roth and pay lower taxes for the next 4 years . My wifes PIA is about the same as mine

We live in NC no state taxes on SS and low property taxes . We have very little expenses .Everything is paid for and no kids living in the basement . I have about 320000 cash and stocks mutual funds also have 800000 in traditional IRA and 165000 in a roth . My wife has about 400000 in her 401k .

Im leaning towards taking my SS at 62.

[capen2468]

I caculated that wrong , It will take 11.58 years to make up the 100,332

[David Jay]

$2850 is a pretty good PIA. What is your wifes' PIA?

One important feature to understand is that the survivor (whichever one that is) gets to keep receiving the larger benefit of the two. It is often the case with married couples that the optimal scenario has the higher earner delaying filing (this provides the biggest benefit to the survivor) and the low wage earner filing earlier to get some cash flow and because the lower benefit will "go away" first.

[JW-Retired]

My PIA is 2580 , At 62 it is 1858

I will lose 100,332 if I wait until Im 66.5 . That 100332 I will need to take out of my investments . It will take over 14 years to make up the 100332 I will lose . I also will lose some return on my investments ( hopefully ) if I cash in 100000 .

If I wait the advantages I see are I could convert more money into a roth and pay lower taxes for the next 4 years . My wife's PIA is about the same as mine

We live in NC no state taxes on SS and low property taxes . We have very little expenses .Everything is paid for and no kids living in the basement . I have about 320000 cash and stocks mutual funds also have 800000 in traditional IRA and 165000 in a roth . My wife has about 400000 in her 401k .

Im leaning towards taking my SS at 62.

Your 14 years to break even calculation is bogus if you don't consider after tax income. SS dollars are Federally taxed at least 15% of your tax bracket less and NC doesn't tax it at all. If you are in the 22% FED tax bracket and 5.5% NC bracket that's 27.5% total tax on your tax deferred investment income, compared to a 0.85(22%) + 0 NC = 18.7% rate on your SS benefit. 27.5%/18.7% = 1.47. So you are trading taking early reduced SS in favor of growing the tIRA and 401k income, which is taxed at a 1.47X higher rate!
JW

[capen2468]

Thanks for the tax info. You have me thinking about delaying until 66 and 4 months , Not sure which way to go . Maybe delay a couple years and use 401k money . Im going to go down there and see what I will get at 64

Too hard to figure everything out . Do I use 401k money or cash in some funds and do roth conversions if I delay ?

[desiderium]

There is a pretty interesting calculator called Maxifi.
It is not free, something like $99 for a year access
It does all these calculations year by year
It accounts for taxable investments, Roth and Traditional
It accounts for working and SS claiming for both you and your spouse
You can run scenarios for different SS claiming strategies and see how it plays out

Might be a useful tool for your situation

[David Jay]

Thanks for the tax info. You have me thinking about delaying until 66 and 4 months , Not sure which way to go . Maybe delay a couple years and use 401k money . Im going to go down there and see what I will get at 64

Too hard to figure everything out . Do I use 401k money or cash in some funds and do roth conversions if I delay ?

There is a complete chart for 1956 birth year:
https://www.ssa.gov/planners/retire/1956.html

For age 64, your benefit, with a PIA of 2580 is: $2177 (2580 * .844)

[And remember, it is a month-by-month increase. You can wait to decide and every month you wait your benefit grows.]

[hulburt1]

I look everyday to see what information I get from you all. SS is growing and my IRA is up 14% over the last 5 years. With only taking out 2% My Ira is up 12% and my SS is growing at about 8%. I'm 65 and going to look at the no. monthly. If the stock market go's down by 25% I still made good money over the last 5 years. SS will be taken when I'm down 20%. I'm also moving some to Roth.

[capen2468]

I like your idea of waiting to decide every month

How long does it take to get it once you decide ?