2023 EP0225 | Peter Richon & Erin Kennedy | Will I Lose My Social Security Benefits if I "Unretire" or Go Back to Work?

We want you to plan for success. Welcome to Planning Matters Radio.

Peter, it's really good to see you. I have a question that I think is on a lot of people's minds these days. Will I lose my Social Security benefits if I un-retire or go back to work? According to the Bureau of Labor Statistics, about 3% of retirees between the ages of 55 and 64 re-entered the workforce since the start of the pandemic. A lot of people, of course, have second thoughts about retirement because it is a hugely emotional and financial decision.

So if I go back to work, Peter, do I lose those benefits? Well, I think those age brackets are kind of important, and I'm not sure if it's going to stay at that low percentage. I'm not sure I completely buy into that low percentage.

55 to 64, right? So these are people who retired on the very early age or even before traditional retirement age. During the pandemic, a lot of people did leave the workforce, and I'm not certain that all of them truly intended on it being a full retirement anyway. But whether it was due to the pandemic itself and maybe the reduction in staffing that was going on or just, hey, I'm already home and I'm kind of enjoying it. Or now looking back to three years into this, the inflation that has happened and life has gotten that much more expensive or the market downturn that we saw in 2022. A lot of people are considering going back to work, especially if they were on the early edge of that and are still capable and able bodied and able to actively earn new income.

But no, the answer is no. If you claimed Social Security, which would mean that you had to be at least 62. So that that shrinks that age bracket considerably. But if you were at least 62, you retired, you claim Social Security.

No, you will not lose it. But there are some other implications there. There is the potential for penalty. Right.

OK, so let's dive into that. If you unretire, your benefits may change. Yeah, indeed. And the government gives you a full retirement age. And for for most, that's now like 67. But it used to be 65 and it graduated up to 67 over a period of many years. So that full retirement age is when you are fully eligible to claim and collect your Social Security. Now, you can claim and collect early as early as 62. But if you are capable and able bodied and out there actively earning income, that does the government doesn't view you as needing that benefit.

They view you as double dipping. And so if you earn too much money in those those caps are pretty low for this year. If you are under full retirement age, it is twenty one thousand two hundred and forty dollars. And if you are in the calendar year where you do attain your full retirement age, it's a little bit more.

Fifty six thousand five hundred twenty. But if you earn more than that for every two dollars, you earn more than those limits. They will take back a dollar of your Social Security. You do have a one year period, though, where you can take a mulligan. So if you are fresh, fresh into Social Security and capable of paying back everything that you have received thus far, if you are within the first 12 months, you can basically do a redo. But if you are more than a year in or you you need that extra money for every two dollars you earn over those relatively low limits, they do take a dollar of Social Security back. So you will get credits for your earnings. And once you attain full retirement age, those credits will be recalculated into your benefits. So later on down the road, you you could see a little bump up.

But for the time being, if you're earning income and you have claimed and collected Social Security before full retirement age, yes, absolutely. There's not only the possibility, but the probability that your benefit will be reduced, but not lost, not taken away. OK, let's hit on two other details, though, if you do unretire. This is something you might want to keep in mind. You may have to keep taking those RMDs, those required minimum distributions. No, you will.

I mean, the one doesn't have anything to do with the other in the government's eyes. If you've got a pot of yet to be taxed, tax deferred money, there is a debt there to the IRS. And if you are before this age, you might not fully understand that they intend to collect that debt during your lifetime, which is why at a certain age they begin to require minimum distributions so they can begin collecting that yet to be taxed tax revenue from your tax deferred retirement account balance. Now, that used to be 70 and a half. It got bumped up to 72. Eventually it will be 75.

But as of this year, due to Secure Act 2.0, it is 73. If you are turning 73 this calendar year or if you have already attained an age due to one of the previous thresholds where you are already taking RMDs, if you've already taken your first one, then regardless of if you are working and earning income or not, you have to remove that required minimum distribution, which is based on your account balance the previous December 31st, the prior year end closing balance and your age with a multiple based on your age, a divisor life expectancy factor determines what your RMD amount is. And it does not matter if you are continuing to earn income, nor does it matter if you are even contributing to retirement accounts with those new earnings, which now you are allowed to do.

Thank you to the Secure Act 2.0. Even if you're above 70, 70 and a half, 72, if you're working and earning income, you can contribute new dollars, but you still have to remove the dollars that the government requires you to remove. You still have to take those RMDs. OK. And last thing to keep in mind, there may be an impact on your Medicare benefits. Yeah.

Yeah. Aunt Irma, we call her income related means assessment. This is basically a means testing and adjustment. This is a means testing of your Medicare benefits.

And once again, if you are earning a certain amount of income, therefore, if you've got new wages to add on to other incomes and cross certain thresholds, then your Medicare expenses for Part B and Part D, prescription drugs, both can adjust and go up. So, for instance, you're earning one hundred and eighty eight thousand six hundred forty five dollars. You're in the lowest threshold bracket, which is under one hundred ninety four thousand dollars. But once you cross that one hundred ninety four thousand, you bump up a bracket. Now you've got an additional sixty six dollars a month on top of the regular one hundred and sixty four dollars and ninety cents. That is the typical per person premium and your Part D expenses go up an additional twelve dollars a month. And then you can see on the screen, if you are watching today's program, that those those thresholds continue to go up. If you're earning over seven hundred and fifty thousand dollars.

Well, lucky you. I think we've got other issues to discuss that would be more important. But your Medicare premiums are going to be significantly higher, an additional almost four hundred dollars a month. So there there is the possibility that going back to work and some people are attracted because they just can't turn the offer down. They're earning so much by going back.

It's a deal they can't refuse. So maybe a few people do fall into that highest bracket threshold, but your Medicare expenses will be adjusted. And by the way, will continue to be adjusted for a couple of years, even once you stop working, unless you submit an appeal. Because the way they gauge this is they look back to tax years. So they look to tax years in arrears to determine how much you were earning, which actually surprises a lot of people. They're like, hey, I'm retired now. I'm not earning nearly as much. Well, that's where you have to submit an appeal potentially to not be taxed on your working career earnings or not be adjusted based on your working career earnings once you have retired. And this is an area where the government and the department that handles these appeals does have some reasonable logic to it. And it's like, well, this individual is retired now, so maybe they're not earning so much. This is interesting, Peter. It almost feels like there should be as much planning that goes into un-retiring as the planning that we put into retiring. So if somebody has questions about what we've talked through today, what's the best way to reach you?

Yeah, whether you're moving into retirement or out of retirement, you can give us a call. 9 1 9 3 0 0 5 8 8 6 9 1 9 3 0 0 5 8 8 6 If you'd like to be in touch, you can also e-mail Peter at Rashan planning dot com. It looks like rich on planning dot com.

My last name. You can also visit online rich on planning dot com. All right, Peter, thank you. Always a pleasure.

Thank you. This has been planning matters radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional adviser. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management. A registered investment adviser fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.