What to know if you withdraw

Kelvin Murray | Getty Images

A combination of record prices and a record number of job openings has encouraged more retirees to return to work. The trend, called “non-retirement,” rebounded to pre-pandemic levels this spring.

About two-thirds, or 68%, of retirees would consider returning to work, according to a recent CNBC survey of the workforce in America. The pandemic has prompted many people to accelerate their retirements, with 62% of retirees saying they left the workforce earlier than expected and 67% saying they left their jobs at least two years early.

Additionally, 42% of respondents in a Nationwide Retirement Institute survey said they wanted to apply for social security benefits early and keep working, up from 36% in 2021.

More from Personal Finance:
Calculators can measure how social security cuts would affect you
Cost of living adjustment of the social security of 10.5% foreseen for 2023
According to one study, the typical job change resulted in a salary increase of nearly 10%.

There are job opportunities: even though job openings fell in June, there were still 1.8 open jobs per available worker.

But if you’re already claiming Social Security retirement benefits, there are a few things you should know before you start earning salaries again.

Social security recipients who return to work may earn more in the short term and may eventually increase their monthly benefit checks, according to Joe Elsasser, founder and president of Covisum, a provider of social security application software.

But in the short term, they may be subject to performance changes so it is worth planning. “This is the surprise that people want to avoid, not knowing that the earnings test will take place and that they will have a penalty,” Elsasser said.

Here are some things you should know before retiring.

Notify Social Security of your return to work

If you intend to return to work, you should notify the social security administration immediately, Elsasser advised. That way, the agency can start reducing your checks now.

If you don’t, you may have an unwanted surprise early next year when the IRS reports your earnings to the Social Security Administration.

If this happens, you may receive an unexpected letter from the Social Security Administration informing you that they are immediately discontinuing your benefit until any previous year’s earnings penalty is recovered.

This could disrupt your cash flow if you don’t expect it.

The earnings penalty can temporarily reduce the benefits

If you are past full retirement age, there is no penalty if you return to work.

“They can earn as much as they want and be able to collect social security checks,” Elsasser said.

The full retirement age is generally between 62 and 67, depending on the year of birth. The Social Security Administration Retirement Age Calculator can help you find out the age at which you will be eligible for full benefits.

In the calendar year you reach full retirement age, you really have a lot more flexibility to work and to have an income, and the penalty is also lower.

Joe Elsasser

founder and president of Covisum

If you are between the ages of 62 and the age of full retirement and return to work after applying for the benefit, you will be subject to a wage penalty, which has two tiers.

Below the first level, you can earn up to $ 19,560 without penalty in 2022. For every $ 2 you earn over that limit, $ 1 is reduced from your Social Security benefit.

The second level applies to the year in which full retirement age is reached. In that year, for the months leading up to the birthday of full retirement age, $ 51,960 in earnings are exempt starting in 2022.

“In the calendar year you reach full retirement age, you really have a lot more flexibility to work and earn an income, and the penalty is lower too,” Elsasser said.

Even if the benefits are reduced for the wage penalty, those who return to work still have the opportunity to earn more in the short term, as well as later when their benefits are increased.

Your benefit check may be larger later

If you are subject to the earnings penalty, your benefit will be recalculated later and this could mean a larger monthly allowance.

Take someone who has a $ 2,000 social allowance, who has returned to work and made $ 40,000. Based on the earnings penalty, they may not receive a social security check for the first five months of the year, according to Elsasser, but in the remaining months they would receive their $ 2,000 benefit.

Once that worker reaches full retirement age, the Social Security Administration counts the months in which he has not received benefit checks due to the earnings penalty. Then, he will adjust the worker’s performance as if he later claimed to be accountable for that time.

Eventually, their benefits increased as if they had delayed benefits, Elsasser said.

“This is the important thing to remember: it’s not a tax,” Elsasser said of the profit penalty; “benefits are not lost; your benefit is recalculated when you reach full retirement age.”


Leave a Reply

%d bloggers like this: