Working Past 66: The Impact on Social Security Benefits

Daniel B. Eagan

A reader of my recent article on when to take Social Security benefits asked whether my analysis would change if a person does not retire at age 66 and plans to work until age 70—and is earning more now than he expects to earn at retirement. That’s a good question.

Many people don’t want to retire as soon as they can—or feel they cannot afford to. But working past what the Social Security Administration in the US calls your “full retirement age” (currently 66, for those born between 1943 and 1954) can have significant tax consequences.

A portion of your Social Security benefits would be taxed if you have substantial income—whether from salary or investments. As the Display below shows, the size of the portion depends on your combined income, which the Internal Revenue Service defines as adjusted gross income (AGI) plus nontaxable interest plus 50% of your Social Security benefits. The benefits are taxed at the same rate you pay for the rest of your income.

In most cases, the taxes on your Social Security benefits would not change the results of our analysis of when to start taking your Social Security benefits. If you have sufficient core capital (enough capital to fund your spending needs for life, even if market returns are poor), whether you begin to take your benefits at 66 or at 70 is not likely to have a big impact on your wealth or your ability to meet your spending needs. If you don’t yet have enough core capital, you can benefit by waiting to age 70 and earning delayed retirement credits. Regardless, you should consult with your tax advisor to make sure you understand how your benefits will be taxed.

The views expressed herein do not constitute, and should not be considered to be, legal or tax advice. The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation. 

Daniel B. Eagan is Head of the Wealth ManagementGroup at AllianceBernstein.

7 comments

  1. John McMahon

    And yet, for each year one waits to receive SS benefits, the benefit amount goes up by 8.0 %.

  2. Thanks for the update. I really appreciate the efforts you have made for this blog.

  3. Donald Yanell

    Since I still work while receiving Social Security benefits, I always feel that the law is not fair. I pay regular income taxes on my social security benefits, as well as my other retirement income, approximately 35%, while my retired friends pay the minimum income tax on their Social security benefits, about 15%. I am being penalized for working! Your comments please

    • Daniel Eagan

      Yes, the more income you have, the greater the portion of your benefits that will be includable in taxable income, up to 85% of your benefit amount. It””s important to note that the income used for the calculation of benefit taxability extends beyond just wages. It also includes retirement account distributions, pension income and portfolio income. Even nontaxable interest earned becomes part of the equation.

      Once those benefits are included in taxable income, your taxable income is subject to the same progressive tax structure as everyone else””s income. That means you pay 0% on your first dollar of taxable income at the federal level up to 35% on the last dollar.

      For more information about taxation of benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

  4. Patricia Robinson

    This information is invaluable, Thank you.

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