An estimated 70 percent of workers plan to continue working for pay after retiring from their first career.
That possibility raises an interesting question: How will working affect Social Security benefits?
To answer that question requires an understanding of three key concepts: full-retirement age, the earnings test, and taxable benefits.
Most workers don't face an "official" retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62 or to put off receiving benefits until age 70½.
"Full retirement age" is the age at which individuals become eligible to receive 100 percent of their Social Security benefits.
The age varies depending on when you were born. For those born before 1955, full retirement age is 66.
For those born in 1960 or later, full retirement age is 67. For those born between 1955 and 1959, full retirement age arrives during your 66th year on a sliding scale depending on which particular year you were born in.
Starting Social Security benefits before reaching full retirement age brings into play the earnings test.
If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit.
In 2015, the income limit is $15,720. During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2015, the limit is $41,880.
For example, let's assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age.
In that year, the worker earns $65,000. The Social Security benefit would be reduced as follows:
Earnings above annual limit: $65,000 - $41,880 = $23,120.
One-third excess: $23,120 ÷ 3 = $7,707.
In this case, the worker's annual Social Security benefit would have been reduced by $7,707 because he or she is continuing to work.
It is important to note that any reduction of benefits due to income is not truly lost.
Your benefit at full retirement age will be increased to compensate for the reduction in previous years.
Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable.
For example, suppose you file a joint return, and you and your spouse are past the full retirement age.
In the joint return, you report a combined income of between $32,000 and $44,000. You may have to pay income tax on as much as 50 percent of your benefits.
If your combined income is more than $44,000, as much as 85 percent of your benefits may be subject to income taxes.
There are many factors to consider when evaluating Social Security benefits.
Understanding how working may affect total benefits can help you put together a program that allows you to make the most of all your retirement income sources -- including Social Security.
Tom Breiter, president of Breiter Capital Management Inc., can be reached at 941-778-1900 or by e-mail at email@example.com