Older Americans may have many reasons for taking on part-time work after leaving their full-time job behind. It’s becoming more and more common for retirees to work well into their 60s, 70s, or even 80s. Are you among those considering a part-time job? If you are, it’s important to know how that income can impact or be impacted by other things that are most likely important to you. Such as taxes, your nest egg, Social Security, and Medicare. Today, let’s explore these implications.
Firstly, there’s the impact on your portfolio. If you’re not sure if your retirement savings will get you through your older years, part-time work may be a way to reduce the amount you actually have to withdraw. You don’t even have to make big money, just enough to reduce your withdrawals is beneficial.
The first thing that could be problematic for you, however, is the impact this extra income will have on taxes. The income earned from your job needs to be reported to the IRS. A good place to start is with estimated quarterly payments. If advanced payments are not made, the IRS may impose penalties. A good rule of thumb is to set aside 20% to 35% of cash flow. This can help offset taxes and other business expenses.
Next, there’s the impact it’ll have on your Social Security benefit. If you’ve already reached your full retirement age 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, though, it’s a different story.
Delaying Social Security for as long as possible means a higher check. However, many will take it as soon as they’re able to. If you’ve started to get 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, also, that this reduction in benefits can come as a surprise.
Furthermore, money from a part-time job could trigger additional Medicare costs. This may be true depending on your overall income. Higher earners could pay more for Medicare Part B and Part D (outpatient coverage and prescription medication, respectively.) 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 may have some info that could help you! Furthermore, there may be options available to you that can lessen the burden of taxes, and the other factors mentioned here, on your income. By all means, reach out to us!
Additionally, you can learn more about this topic by reading this article from the Wall Street Journal.