“Unretiring” usually isn’t something that most Americans generally want to do; but, in tough economic times, it can become a necessity.
While there’s nothing stopping you from going back to work at any time you’d like, if you’re already receiving Social Security benefits, things can get a bit tricky. Depending on your situation, you may end up having benefits withheld or even having to pay them back. In some cases, you may even owe penalties.
Here are the most important things to know about Social Security if you’re unretiring — and the mistakes to avoid.
Your Full Retirement Age Is Important
Your full retirement age determines a lot regarding how much Social Security you earn — and keep. If you have to unretire before you hit your full retirement age, it can have immediate consequences — although you’ll never “lose” the amount to which you’re entitled.
The reason is that the Social Security Administration reduces the amount of your benefit if you earn above certain limits before your full retirement age. Specifically, the SSA will dock your benefits by $1 for every $2 you earn above the annual limit, which is $21,240 for 2023.
However, in the year you reach your full retirement age, that deduction falls to $1 for every $3 you earn above the limit. Once you pass full retirement age, there is no deduction for working. You could earn $200,000 and still receive your full Social Security retirement benefit.
Thus, if you can hold off unretiring until your full retirement age — which for those born in 1960 or later is 67 — you won’t have to worry about work reducing your Social Security benefit.
Even if you have to unretire before full retirement age, there’s a silver lining. Once you reach full retirement age, any benefits that the SSA has withheld will be incorporated into your future checks. In other words, you don’t “lose” those benefits by working; they are simply deferred.
Earning Too Much Can Make Your Social Security Taxable
Another important thing to factor into your unretiring decision is that earning too much money can make your Social Security benefits taxable.
If you file taxes as an individual, you might have to pay tax on up to 50% of your benefits if your “combined income” is between $25,000 and $34,000. If you earn more than $34,000, up to 85% of your benefits might become taxable.
For joint filers, the 50% tax rate kicks in for incomes between $32,000 and $44,000. Incomes above that level can make as much as 85% of your benefits taxable.
For the purposes of this calculation, “combined income” refers to your adjusted gross income plus any nontaxable interest plus one-half of your Social Security benefits.
If you’re unretiring, try to keep your reportable income below these levels to help avoid taxation of your benefits.
Withdrawing Your Social Security Application
If you decide to unretire within 12 months of when you filed for Social Security benefits, you might be able to undo the whole thing. Of course, if you do file to withdraw your Social Security benefits in the first year after you file, there’s a catch: You’ll have to pay back in full all of the money that you’ve been paid.
Obviously, if you’ve been spending the benefits as you received them, this could be a problem. But, if you’re in a position to do it, you can benefit from the application to withdraw, as the SSA will treat your application as if you never filed it in the first place.
After your “unretirement,” you can file for Social Security once again at a future date. The benefit here is that the later you file for your benefits, the higher they will be. Every year you delay claiming your Social Security benefits, from age 62 to age 70, your benefit will increase. From age 67 to age 70, this increase is a whopping 8% per year.
Thus, if you withdraw from Social Security and work a few extra years, you’ll be rewarded with a higher lifelong retirement benefit.
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