How additional income might collide with other financial considerations

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  • Some retirees find they need or want to return to work.
  • Among workers aged 65 or older, 40% had already retired at some point, according to a study.
  • It’s worth checking out the impact of additional income from a job on other financial areas of your life, including health insurance costs and Social Security benefits.



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Sometimes older Americans find that retirement is just not a good solution.

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Whether it’s because they need more income or want to thrive, many older Americans return to work after quitting. Among workers aged 65 or older, 40% had already retired at some point, according to a report by Rand Corporation.

However, if you are one of those considering returning to a job, it is worth considering how the extra income might affect other aspects of your financial life.

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Of course, additional income in and of itself is not bad.

“If you make even $ 5,000 and that means you don’t have to withdraw $ 5,000 from your retirement savings, it’s money that can be invested,” said certified financial planner David Demming , president of Demming Financial Services in Aurora, Ohio. “It puts less strain on your asset base.”

Here is what you need to know.

Social Security

If you receive Social Security before your full retirement age (as defined by the government) and you are still working or returning to work, your wage income could reduce your benefits.

While delaying Social Security for as long as possible means a higher monthly check, many people take it as soon as they can – at age 62 – or soon after.

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“Anyone on Social Security who has not reached full retirement age should carefully assess their return to work against the reduction in their benefits,” said CFP Shon Anderson, president of Anderson Financial Strategies in Dayton, Ohio.

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If you start receiving these monthly checks sooner, there is a limit to how much you can earn while working without affecting your benefits. For 2021, this limit is $ 18,960.

If you earn more than that, your benefits will be reduced by $ 1 for every $ 2 you earn above this threshold.

Then, when you reach full retirement age around 66 or 67 – the exact age depends on your year of birth – the money comes back to you in the form of a higher monthly check. (And remember, depending on your overall income, up to 85% of your Social Security benefit is subject to federal income tax.)

At this point, you can also earn as much as you want while working without affecting your Social Security benefits.

Also, if you are one of those early working takers and you reach full retirement age in 2021, then $ 1 is deducted from your benefits for every $ 3 you earn above 50,520. $.

Health insurance surcharges

Although you become eligible for Medicare at age 65, it is not free.

Along with additional income from a job that could push you into a higher tax bracket, it could also lead to additional costs for Medicare.

Basically, top earners pay extra premium for Medicare Part B (outpatient coverage) and Part D (prescription drug coverage). The additional charges start at income over $ 88,000 for individuals and $ 176,000 for married couples filing jointly. (See tables below.)



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Typically, the government uses your tax return for the previous two years to determine if you owe these surcharges.

“If someone went back to work with a healthy salary, they might be surprised by the increase in their health insurance premiums about two years later,” Anderson said.

Don’t forget your RMD

Under the changes that entered into force last year, age 72 is when you face the minimum distributions required, from age 70 and a half.

Working when you reach that RMD age may make it easier for you to forget about required withdrawals, experts say.

If you are an employee and contribute to your company’s pension plan, RMD generally does not apply to that particular account until you retire.

However, you will still need to withdraw these distributions from any traditional individual retirement account you have, as well as 401 (k) plans from past employers. Failure to do so will result in a potential tax penalty of 50%.

Roth IRAs do not have an RMD as long as the original owner remains alive.

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