Category: Social Security

How Will Working Affect Social Security Benefits

July 27, 2020
Retirement, Social Security

In a recent survey, 68% of current workers stated they plan to work for pay after retiring.¹

And that possibility raises an interesting question: How will working affect Social Security benefits?

To answer that question requires an understanding of three key concepts: full-retirement age, the earnings test, and taxable benefits.

Full Retirement Age

Most workers don’t face an “official” retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62—or to put off receiving benefits until age 70.

“Full retirement age” is the age at which individuals become eligible to receive 100% of their Social Security benefits. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.²

Earnings Test

Starting Social Security benefits before reaching full retirement age brings into play the earnings test.

If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2019, the income limit is $17,640.³

During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2019, the limit is $46,920 before the month the worker reaches full retirement age.⁴

For example, let’s assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age. In that year, before the month the worker reaches full retirement age, the worker earns $65,000. The Social Security benefit would be reduced as follows:

In this case, the worker’s annual Social Security benefit would have been reduced by $6,026 because he or she is continuing to work.

Taxable Benefits

Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable.

For example, say you file a joint return and you and your spouse are past the full retirement age. In the joint return, you report a combined income of between $32,000 and $44,000. You may have to pay income tax on as much as 50% of your benefits. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.

There are many factors to consider when evaluating Social Security benefits. Understanding how working may affect total benefits can help you put together a program that allows you to make the most of all your retirement income sources—including Social Security.

What’s Your Full Retirement Age?

Those born in 1942 or before were already eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67.

Source: Social Security Administration, 2019

1. Employee Benefit Research Institute, 2018
2,3,4. Social Security Administration, 2019

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

Key Questions to Answer Before Taking Social Security

July 29, 2019
Financial Planning, Retirement Planning, Social Security, Uncategorized

Social Security may be a critical component of your financial strategy in retirement, so before you begin taking it, you should consider three important questions. The answers may affect whether you make the most of this retirement income source.

When to Start? The Social Security Administration gives people a choice on when they start receiving their Social Security benefit. You can:

Start benefits at age 62 or later.
Claim them at your full retirement age.
Delay payments until after full retirement age.

If you claim early, you can expect to receive a monthly benefit that will be lower than what you would have earned at full retirement. If you wait until age 70, you can expect to receive an even higher monthly benefit than you would have received if you had begun taking payments at your full retirement age.

When researching what timing is best for you, it’s important to remember that many of the calculations the Social Security Administration uses are based on average life expectancy. If you live to the average life expectancy, you’ll eventually receive your full lifetime benefits. In actual practice, it’s not quite that straightforward. If you happen to live beyond the average life expectancy, and you delay taking benefits, you could end up receiving more money. The decision of when to begin taking benefits may hinge on whether you need the income now or if you can wait, and additionally, whether you think your lifespan will be shorter or longer than the average American.[i]^,[ii]

Should I Continue to Work? Besides providing you with income and personal satisfaction, spending a few more years in the workforce may help you to increase your retirement benefits. How? Social Security calculates your benefits using a formula based on your 35 highest-earning years. As your highest-earning years may come later in life, spending a few more years at the apex of your career might be a plus in the calculation. If you begin taking benefits prior to your full retirement age and continue to work, however, your benefits will be reduced by $1 for every $2 in earnings above the prevailing annual limit ($17,640 in 2019). If you work during the year in which you attain full retirement age, your benefits will be reduced by $1 for every $3 in earnings over a different annual limit ($46,920 in 2019) until the month you reach full retirement age. After you attain your full retirement age, earned income no longer reduces benefit payments.^2,[iii]

How Can I Maximize My Monthly Benefit? The easiest way to maximize your monthly Social Security is to simply wait until you turn age 70 before claiming your benefits.^1,2

To learn more about CapSouth and the services we provide, please call 800.929.1001 or visit our website at www.capsouthwm.com

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. Tax and legal laws are often complex and frequently change. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

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[i] https://www.nerdwallet.com/blog/investing/take-social-security-benefits/

[ii] https://www.thestreet.com/retirement/social-security/maximum-social-security-benefit-14786537

[iii] https://www.fool.com/retirement/2018/12/01/4-things-you-need-to-know-about-filing-for-social.aspx

Where Will Your Retirement Money Come From

June 20, 2019
Estate Planning, Retirement Planning, Social Security

For many people, retirement income may come from a variety of sources. Here’s a quick review of six primary sources:

Social Security

Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. (If there are fewer than 35 years of earnings, non-earning years may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.[i]^,[ii]

Personal Savings and Investments

These resources can also provide income during retirement. Depending on your risk tolerance, time horizon and goals, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.

Individual Retirement Accounts

Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.[iii]

Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Roth IRAs do not have any required minimum distribution rules.³

Defined Contribution Plans

Many workers are eligible to participate in a defined-contribution plan such as a 401(k), 403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax income into an account, and the invested assets may accumulate with taxes deferred, year after year. Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.[iv] Some plans may also include an option to contribute after tax income.

Defined Benefit Plans

Defined benefit plans are “traditional” pensions – employer-sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.[v]

Continued Employment

In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a personal decision that should be made after considering your finances and personal goals.[vi]

To speak to a CapSouth advisor about retirement planning contact our office at 800.929.1101 or visit our website at http://capsouthwm.com/services/financial-estate-planning/

Utilize our free financial calculator at https://capsouthwm.com/resources-guides/financial-calculators/

[i] https://www.waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security

[ii] https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

[iii] https://www.cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html

[iv] https://www.fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx

[v] https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp

[vi] https://www.investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp