Continue Employment after Full Retirement Age

GeorgeH429389 · ‎05-06-2019

I've been searching all over for an answer to my particular question, but can't find anything. Hopefully someone here can offer some advice.

This July I will be reaching my full retirement age (66). I am still working full time and contribute to a 401k through my office, I contribute as much as I can afford, of course I wish I could contribute more, especially considering my age. I don't plan on retiring this year and probably not next year.

I live in NY and would like to move to a lower cost of living area (like everyone else) but my wife is 13 years younger, has a very good job, and wouldn't be agreeable to moving.

I'm thinking about filing for SS this year and collecting my benefits starting in July while I'm still working full time. My monthly benefit would be about $2,150. I'd up my 401k contribution to the maximum (my current contribution plus a portion of the $2,150), the balance of the $2,150 would be invested elsewhere.

I understand that my benefits would increase for each year I delay filing and would mean an overall benefit for an average lifespan of 83 years but lately I've been feeling my age catch up to me, I have high blood pressure and a heart arrythmia which I'm on medication for, and to be truly honest with myself, I wouldn't bet on 83 years.

I like my idea because #1- I can retire from work at any time, if I feel it becomes too much for me and #2 - I don’t have to gamble on my life expectancy.

I’d appreciate it if someone would explain if my plan is good, or a poor choice.

Thank you!

RitchieH510373 · ‎05-10-2019

I'll give my two cents.

Once you've reached your Full Retirement Age (FRA), you won't be subject to the earnings test if you work and receive benefits at the same time, which would clawback some of your Social Security benefits once your income surpasses some thresholds, so you'll be okay on this front if you wait until July. For someone reaching FRA in 2019 and claiming prior to FRA, Social Security will withhold $1 in benefits for every $3 of earnings in excess of $46,920.

The big concern I would have to collecting benefits while both you and your wife are working is taxation. The portion of your benefits subject to taxation varies with income level. You’ll be taxed on:

up to 50% of your benefits if your income is $32,000 to $44,000 for a married couple filing jointly and up to 85% of your benefits if your income is more than $44,000 (couple). Your "income" for this purpose is your adjusted gross income (AGI) plus nontaxable interest income plus half of your Social Security benefits. AGI is reduced by 401k contributions so that may help.

There's a lot of variables in your situation. Depending on your combined income, collecting Social Security benefits while you are both working subjects your benefits to high levels of taxation (a potentially large amount if you bought earn a lot of money currently). I don't have enough information about you and your wife's work history, but if your Social Security benefit ends up being much larger than hers, delaying your benefit would help her receive a large spousal benefit and survivor benefit (if you pass away before her). I also understand your concerns over your health. If you have a strong basis for believing your health is worse than average, taking benefits earlier rather than later is probably advisable, but how much earlier would depend on how much worse you believe your health is compared to average.

GeorgeH429389 · ‎05-11-2019

Ritchie,

Thank you so much for that information.

You state my AGI will be reduced by 401k contibutions, what about IRA contributions?

If I contribute the maximum to both ($19,000 + $6,000 catchup to 401k and $6,000 + 1,000 catchup to IRA), my AGI increase will be about $7,000.

For this year, because I'll only be receiving benefits for 6 months, there would be no increase in AGI.

Thanks again!

RitchieH510373 · ‎05-11-2019

@GeorgeH429389 wrote:
Ritchie,
Thank you so much for that information.
You state my AGI will be reduced by 401k contibutions, what about IRA contributions?
If I contribute the maximum to both ($19,000 + $6,000 catchup to 401k and $6,000 + 1,000 catchup to IRA), my AGI increase will be about $7,000.
For this year, because I'll only be receiving benefits for 6 months, there would be no increase in AGI.
Thanks again!

You are correct - IRA contributions would reduce your AGI, provided you are below the income limits

https://www.fidelity.com/retirement-ira/contribution-limits-deadlines