Early Retirement

[Angel11143]

I am 60 1/2 and am considering retirement at age 62. I may continue to work part time to offset expenses. What all should I consider with making my decision to retire early (I don’t have much saved in retirement). 

[xmasbaby0]

Without going into ALL the variables possible---the one that comes to mind first for me-- is what are you planning to do for healthcare if you have had an employer healthcare plan up to now?  You cannot get Medicare until you are 65 (except for some special circumstances)---so that is a big one to consider.

TAX ON SOCIAL SECURITY

Up to 85% of your Social Security benefits can be taxable on your federal tax return.  There is no age limit for having to pay taxes on Social Security benefits if you have other sources of income along with the SS benefits.  When you have other income such as earnings from continuing to work, investment income, pensions, etc. up to 85% of your SS can be taxable. 

 What confuses people about this is that before you reach full retirement age, if you continue working while drawing SS, your benefits can be reduced if you earn over a certain limit. (For 2017 that limit was $16,920 —for 2018 it was $17,040—for 2019 it was $17,640— for 2020 it is $18,240; for 2021 it is $18,960)  After full retirement age, no matter how much you continue to earn, your benefits are not reduced by your earnings; your employer will still have to withhold for Social Security and Medicare.

To see how much of your Social Security was taxable, look at lines 6a and 6b of your 2020 Form 1040

https://ttlc.intuit.com/questions/1899144-is-my-social-security-income-taxable

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is $25,000 when filing single or head of household, or $32,000 when filing married filing jointly, $0 if you are filing married filing separately.

Some additional information:  There are 13 states that tax Social Security—Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.  These states offer varying degrees of income exemptions, but four mirror the federal tax schedule: MN, ND,VT, and WV

[KochuK]

Hi Angel11143, thank you for joining TurboTax Special Forum today.

I have a great article for you.

At what age should I start receiving my Social Security retirement benefits?

https://faq.ssa.gov/en-US/Topic/article/KA-03391

Depending on your birth year, full retirement age differs.
To find your full retirement age (FRA):
https://www.ssa.gov/benefits/retirement/planner/ageincrease.html

If you take Social Security benefits before FRA, the benefit is permanently reduced. During the pre-FRA years, benefits are reduced by 1 for each $2 earned above $18,960 during 2021. $18,960 will change when you turn 62, but this is a good refence. Please contact us if you need further information.