Older Americans may have many reasons for taking on part-time work after leaving behind their full-time job. It’s becoming more and more common for retirees to work well into their 60s and 70s.
If you’re among those considering a part-time job, it’s important to know how the income can impact other things that are most likely important to you, like your nest-egg, social security, and Medicare. Today, let’s explore this.
Firstly, there’s your portfolio. If you’re unsure whether your retirement savings will truly get through your older years, part-time work might be a way to reduce the amount you withdraw. You don’t even have to make big money, just enough to reduce your withdrawals a bit is good.
The first thing that could be problematic, though, is taxes. Obviously, the income earned from your part-time job needs to be reported to the IRS. A good place to start is with estimated quarterly tax payments. If advanced payments are not made, the IRS might impose penalties. A good rule of thumb is to set aside 20 to 35 percent of cash flow to help offset taxes and other business expenses.
Then, there’s how it impacts your Social Security benefit. If you’ve already reached your full retirement age, as defined by the government, and are eligible for Social Security, you can earn as much as you want without reducing your benefits. However, up to 85% of it is subject to federal income taxes, depending on your overall income.
If you haven’t reached that age, however, it’s a different story. While delaying Social Security for as long as possible means a higher check, many will take it as soon as they can anyway. If you start getting these monthly checks early, there’s a limit on how much you can earn from working without your benefits being affected. Your benefits can be reduced if your earnings reach above a certain cap. Be aware, too, that the reduction in benefits can come as a surprise… And all at once.
Additionally, depending on your overall income, money from a part-time job could trigger additional Medicare costs. Higher earners will pay more for Medicare Parts B and D (outpatient coverage and prescription drugs). The higher premiums start at income above $85,000. However, according to the Social Security Administration, less than 5% of Medicare recipients are actually subject to it. Whether you pay more is based on your modified adjusted gross income.
If you’re looking for more methods of earning more money in retirement, we might have some info that can help. Additionally, there may be options available to you that can lessen the burden of taxes and other factors mentioned here. By all means, reach out to us.
You can learn more about this topic by reading this article from the Wall Street Journal.