A hefty cost-of-living increase for Social Security won’t fully protect against rising inflation; some individuals realized they needed to save more, and others discovered that retirement was no longer engaging.
Studies indicate that the proportion of seventy-year-olds in the labor market has increased. In January 2020, around 37 percent of Americans aged 62 to 70 were employed, according to Alicia Munnell, director of Boston College’s Center for Retirement Research. By April 2020, this proportion had dropped to 30, but by August of the same year, it had increased to 36. The increase was attributable to workers returning to the workforce.
Numerous Americans who have claimed Social Security discover that continuing to work necessitates complicated decision-making involving a detailed examination of Social Security and Medicare as well as short-term financial preparation.
The Social Security income test
Your payments are decreased if you work while receiving benefits and before reaching the full retirement age (FRA). FRA ranges from 66 to 67, depending on your birth year. The Social Security Administration determines this decrease using a measure of wages. The good news is that the benefits you forfeit while working are not permanently withheld.
Working will normally reduce your Social Security benefits if your wages exceed a certain threshold of $19,560 in 2024.
Complex procedures govern the calculation of delayed benefits by Social Security. One way to view it: If you achieve your FRA in 2024 but work throughout 2024, your benefits will be cut by $1 for every $2 over the limit you earn. And if you continue to work in 2024, they will decrease by $1 for every $3 you earn until the month you reach your FRA.
Cassandra Kirby, a certified financial planner at Braun-Bostich & Associates in Canonsburg, Pennsylvania, advised caution if you resumed employment before your full retirement age.
In retirement, there are two strategies to prevent this problem: Either cease working or inform the Social Security Administration that you wish to suspend or “withdraw” your benefits, so stop payments.
Timing is crucial, stated Ms. Kirby. After receiving benefits for the first time, non-F.R.A. recipients have one year to revoke them. Social Security’s guidelines provide that once you attain FRA, your monthly payment will be permanently enhanced to account for the months during which benefits were withheld.
If you miss this window, you must wait until you reach your full retirement age (and before you turn 70) before you may suspend your benefits. In addition, you can only suspend benefits once in your lifetime.
If you can afford it, delaying Social Security benefits is frequently the best decision. Barbara Brownell Grogan of Charlottesville, Virginia, chose at age 57 to resign as a book editor for National Geographic and launch a publishing consulting firm around eleven years ago. To avoid the reduction in benefits, she did not apply for Social Security until two years ago, when she reached full retirement age.
She said that she may delay “full retirement” until 70, the age at which those who wait can get a significantly larger pension. Daniel, the husband of Ms. Grogan, waited until he was 66 to avoid a reduction in benefits. Although he has retired from his career as a photographer, he administers the Charlottesville property he owns.
Although she enjoyed her 27 years with National Geographic, Ms. Grogan stated, “I’m doing what I love.” The first reason for her retirement was to care for her spouse throughout his sickness.
Sam Brownell, the nephew of Ms. Grogan and a chartered financial analyst, led her through various software-generated Social Security cash-flow scenarios. They predicted that she may survive until her mid-nineties. A portion of their conversation concerned the lump sum she withdrew from her 401(k) plan. Because she carried over the withdrawal into an individual retirement account, she was neither penalized nor taxed by Social Security.
The two most important criteria in maximizing your Social Security payments
Know how much you earned throughout your working years and at what age you begin receiving benefits. Those who wait until they reach age 70 are eligible for the maximum basic monthly retirement benefit. Spouses can petition for benefits beginning at age 62 and receive up to half their partner’s primary benefit.
Spouses may also apply later to be eligible for bigger benefits at their full retirement age, or they may file on their own earnings record, which may result in an even higher benefit. In any event, it is prudent to crunch the figures using commercially available software or a qualified financial planner.
The impact of income on Medicare
Medicare Parts B and D premiums may increase if you earn substantially more money after returning to the workforce. Part B premiums, which cover doctor’s appointments and outpatient services, are withheld from Social Security benefits; Part D premiums cover prescription medicines. In 2024, the regular premium for Medicare Part B will be $164.90 per month, a drop from 2024’s price of $170.10 per month. The predicted average Part D basic premium for 2024 is $31.50, a small drop from 2024.
Medicare employs a rigorous means-testing procedure to assess the expenditure of people who pay more than the regular premium.
You may be liable to the Medicare IRMAA, a surcharge on Part B and Part D premiums based on your income. If you exceed the limit, Social Security will notify you, but you can still prepare.
The Medicare premium surcharge income requirements are based on a sliding scale. If you are a single individual with an annual adjusted gross income of $91,000 or more but less than $114,000, your monthly Part B premium is $238.10, and your monthly Part D payment is $12.40. Part B costs $578.30 per month for people who file jointly and earn more than $750,000, while Part D costs $77.90 per month.
The rationale for the discrepancies is that high-earning seniors can afford to pay higher rates, and the increased premiums are likely not a game-changer for them. However, most individuals should be wary of increased income that may place them in a higher premium bracket.
Medicare will also consider income increases from diverse sources, for instance, from the sale of a business or gains from investments.
Ms. Kirby stated Significant financial gains might propel you into the high-income bracket. She explained that Social Security could look back two years when calculating any premium surcharges based on your income.
Reviewing your strategy
Consider that your short-term goal has evolved into a long-term strategy that includes working for a few more years. Among the considerations are: Would you want to travel? How are you feeling? Do you intend to move? If your post-postretirement plan is not adequately funded, you may need to determine how you will continue to save.
For some individuals, preparing for funds to endure well beyond the tenth decade makes sense. Ms. Kirby recommends that individuals do a “stress test” using alternative retirement ages, considering their desired lifestyle, life expectancy, tax bracket, and investing strategy.
If you are single and have a lower life expectancy, Kirby states that she would collect benefits as soon as possible. Those who anticipate a longer life span can afford to wait. If your income qualifies, a Roth I.R.A. should be considered by people who need to save more until they re-retire. Contributions are taxed upfront, but withdrawals are not taxable if they remain in the account for five or more years.
Mr. Crane stated that a SEP IRA might be an excellent solution for self-employed individuals. Although you may be subject to the Social Security reduction if you take benefits while working, the money you save in a defined-contribution plan (coupled with investment returns) and the tax deduction for doing so may balance the Social Security reduction before full retirement age.
You could be astonished if you redesign your retirement: Your re-retirement may be even better than your initial retirement if you have a larger financial buffer and greater cognitive and social activity from working.