How Part-Time Work Affects Social Security Benefits

Oct 23

Retirement today looks different from previous generations. Many retirees choose to stay engaged through part-time work, whether to supplement their income, stay active, or simply for personal satisfaction. However, before taking on a part-time job, it's crucial to understand how it can impact your Social Security benefits and taxes. Here’s what you need to know:

Potential Reduction in Social Security Benefits

If you haven’t yet reached your full retirement age (FRA), working part-time can temporarily reduce your Social Security benefits. In 2024, if you are under FRA and earn more than $22,320, your benefits will be reduced by $1 for every $2 you earn above this limit. The rules change in the year you reach FRA; the earnings limit increases to $59,520, with a reduction of $1 for every $3 earned over this threshold. After reaching FRA, your benefits are no longer reduced, no matter how much you earn. Moreover, any benefits withheld before reaching FRA are recalculated, which can lead to an increase in your monthly benefit amount moving forward.

Example Calculation:

Let’s say you’re entitled to $12,000 in annual Social Security benefits. If you earn $30,000 from a part-time job, here’s how your benefits would be affected:

2024 SSA Earnings Limit: $22,320
Amount Above Earnings Limit: $7,680
Social Security Reduction: $3,840 ($1 for every $2 earned over the limit)
Social Security Received: $8,160 ($12,000 - $3,840)

It’s important to note that income such as IRA distributions does not count towards the Social Security Earnings Test.

Taxation on Social Security Benefits

Part-time work can also affect the taxability of your Social Security benefits. If your total income exceeds certain thresholds, a portion of your benefits may be subject to federal income tax. The thresholds for 2024 are:

Single Filers: Up to 50% of benefits are taxable if your combined income is between $25,000 and $34,000. Up to 85% is taxable if income exceeds $34,000.
Married Couples (Joint Return): Up to 50% of benefits are taxable if your combined income is between $32,000 and $44,000. Up to 85% is taxable if income exceeds $44,000.

Combined income is calculated as your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits.

Impact on Other Retirement Benefits

Part-time work can also impact other aspects of your retirement, such as:

Pensions: Some pensions may have earnings limits that could affect your payments if you exceed a certain income threshold. Check with your plan administrator for specific details.
Medicare Premiums: Additional income from part-time work could increase your Medicare Part B and Part D premiums if your modified adjusted gross income surpasses certain thresholds. This is often referred to as the Income-Related Monthly Adjustment Amount (IRMAA).

Key Considerations

Know Your Full Retirement Age: Be aware of how working before your FRA can reduce your benefits.
Monitor Your Earnings: Keep track of your earnings to avoid exceeding the Social Security earnings limit if you are under FRA.
Seek Professional Advice: Consult with a financial advisor to see how part-time work fits into your overall retirement strategy.

Conclusion

Working part-time in retirement can be both fulfilling and financially beneficial, but it’s essential to understand the potential impacts on your Social Security benefits and taxes. With careful planning and awareness of the rules, you can enjoy the benefits of staying active in the workforce without jeopardizing your financial stability.

For more detailed information, you can refer to the SSA’s guide on working while receiving Social Security benefits.

Disclosures:

Fortress Financial Group LLC (“FFG") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where FFG and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://fortressfg.net/. For current FFG information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with FFG’s CRD# 315329.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.