People are living longer and longer. For many people, retirement is the beginning of a whole new chapter in life, not just a brief epilogue. While the 9-5 grind may no longer be a necessity, many retirees are considering part time jobs as part of that new chapter. For some, this is a matter of economic necessity; they just don’t have enough saved to live in a manner they’d like. Others may be passionate about what they do and feel unready to stop working entirely. Some others may want to try a different field or use their skills in a new way.
There’s no rule that says you have to stop working once you retire. There are, however, rules about how the money you earn affects your other retirement benefits. If you’re eligible for social security benefits and are considering a part time job, here’s how it will affect you.
Social security benefit calculations are incredibly complicated, requiring quite a bit more math than the space of this column could allow. In a nutshell, there are two factors that determine how much money you get from social security: your earnings and the age you start collecting.
Your earnings are calculated from your 35 highest-earning eligible years, indexed to modern dollars. If you started working at age 23 and plan to retire at age 58 or later, those will likely be the basis for your benefit. Unless you worked for a government or some other social security exempt institution, it’s unlikely you can move your earnings amount with a post-retirement part time job.
If you did most of your work for one of these entities, a part time job can really boost your benefit. Not only will you have more years of salary, but you’ll also have more years of “credit” with Social Security. A credit is based on salary, and you can earn a maximum of 4 per year. You earn one credit if you make $1,300 and the maximum of 4 if you make $5,200. 40 total credits are needed to get to full benefits, so a few years in a part time job can make a real difference.
The age you start collecting plays a big role in your total benefits. Full retirement age, or the age at which you collect 100% of your benefit, is between 65 and 67, depending on when you were born. You can take benefits as much as 5 years earlier if you need to, although the amount you receive will be drastically reduced.
Further, if you elect to take benefits early, there’s a cap on how much you can earn from a job. In 2017, that limit is $16,920. If you earn more than that, Social Security deducts $1 for every $2 you make beyond the limit. The limit gets higher in the year you reach full retirement age, and Social Security only deducts $1 for every $3 you make over the higher limit. In the month you reach full retirement age, there are no limits on your earnings.
There are also tax implications to the part time job decision. Social Security benefits aren’t taxable if your total earnings, including Social Security benefits, are less than $25,000 or $32,000 for couples filing jointly. This would include things like IRA distributions, pension income, capital gains from investments, and other sources of income. If that total amount is greater than $34,000 for singles or $44,000 for married people filing jointly, then 85% of your benefits are subject to tax.
Working for additional years also allows you to make more efficient use of tax-advantaged retirement accounts. Your employer may offer a 401(k) program to maximize your retirement savings, and you can skip mandatory distributions from sponsored 401(k) plans as long as you’re actively working.
There are many reasons to keep working after you’ve officially “retired.” These might include meeting new people, doing something fulfilling, and, yes, a paycheck. Let these factors, along with some financial advice, guide you in determining if a part-time job is right for your retirement.