Social Security Benefits: Key Considerations before You Make a Decision

As more Americans remain healthy well into their 80’s or byond, the picture of retirement for those lucky folks could be changing.  Often, they have the capacity and interest (or need) to continue some form of work as a senior citizen.  That could mean continuing a full-time profession, consulting part time or turning a hobby into a second career.

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 Limits for 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.

For taxation of Social Security Benefits, regardless of when you take Social Security benefits, if your combined income 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 should not affect when you decide to take your Social Security benefits. However, it is important to understand how your benefits could be taxed when determining your after-tax income in retirement.  If you have any questions regarding when or how to take your Social Security benefits, please contact your ShindelRock tax professional to discuss your options.