Pros and Cons of doing the "double-dipping"

[ecwangus]

After I reach my full legal retirement age (66 years 6 months), what are the pros and cons should I decide to start collecting social security benefits while continue to work full time at my current job? Thank you.

[rschule1]

Hi There:

Choosing the optimum time to claim Social Security is the purview of a Financial Planner since many unknowns such as life expectancy, emergency spending, inflation, return on investments, etc. should be forecasted with specialized software.

[Cindy4]

Hi ecwangus!

At full retirement age you are able to continue working as much as you want without having the amount of social security you draw negatively impacted, but there are still tax consequences most folks don't realize.

You must pay taxes on between 50 and 85% of your Social Security benefits if you file a Federal tax return as an “individual” and your “combined income” exceeds $25,000 or a joint return, and you and your spouse have “combined income” of more than $32,000.

 “Combined income” includes your adjusted gross income, tax-exempt interest income and half of your Social Security benefits.

The pros of continuing to work and draw social security is you could enjoy income up to $25,000 is single or $32,000 if married without any of your social security benefits being taxable.  Even if you have income higher, only a max of 85% of your benefits will be taxable.

The cons of going ahead and starting it, are that if you don't really need the income, you could reduce the tax impact by waiting until a later date, and you would also have an increased social security benefit.

[ecwangus]

So is there any major negative impacts going for double dipping - working full time while collecting SSB after reaching FRA?? I live in Maryland so there's no state income tax for SS income. Thanks.

[Cate9]

As mentioned, this can be best addressed by consulting a financial planner.  However, here is a link that may address your quesitions. https://www.ssa.gov/OACT/quickcalc/early_late.html

Basically, for each year that you continue to work until age 70, your base social security benefit will increase.  If you, however, begin taking social security before the age of retirement, your benefits will be reduced. Since you have reached retirement age, you don't have to worry about the benefits being reduced.  If you use the calculator in the above link, you can see how your benefits could be effected by delaying your retirement.  I hope this helps. 

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[Cindy4]

Not to me there isn't at FRA, but I don't know what your total earnings are outside of social security.  Some people don't like to pay tax at all on their social security, or at least like to keep it at the 50% level.

[ecwangus]

Wow, up to 85%? FYI, I am single (divorced) living in Maryland where SSB is not taxable, I am making decent annual salary (way more than 25,000 that is), the up to 85% applies to my social security income only, correct? Thank you.

Erika

[ecwangus]

Thanks for the link, will check it out!

[Cindy4]

Correct!  85% max is what is taxable on your social security.

[ecwangus]

FYI, my annual income is at the $140K range, but to pay up to 50% in FICA for my SS income is still high if you ask me... is there a reason why for that high percentage?

[Cindy4]

The 50 or 85% isn't for FICA, it's for income tax and will be taxed at your marginal income tax rate.

Just for clarification for others, FICA is social security and Medicare tax, separate from federal income tax.

[Cindy4]

Further clarification.  The 50 or 85% is the amount of your social security that will be taxed at your marginal rate.

[ecwangus]

Got it... Thank you! 

[ecwangus]

Ok, I am a bit confused by now.  I will start collecting SSB in October 2023 after I reach my FRA in September 2023 while continue to work full time at my current job.  Since the deductions on my paycheck remain the same, when I file income tax next year, how will I be taxed? My salary plus the 3 months SSB payment or the SSB is taxed separately?  Thank you.

[Cindy4]

Goodness!  Sorry for the confusion.

The SSB will show as separate income on your form 1040 tax return and will be taxed at the time you file.  You may want to consider having withholding on your SSBs by filling out this form and taking it to you local Social Security office.

https://www.irs.gov/pub/irs-pdf/fw4v.pdf