Getting older isn’t what it used to be. Today’s retirees strive to stay healthy as they age. In an effort to be active, many older adults continue working part-time after retirement.
In fact, workers age 65 and older are more likely to be employed part-time than people in the prime of their career, according to AARP. Pew Research also finds that older workers spend more time on the job today as compared to past generations.
Retirees can make extra income by picking up a job, which provides an added boost to their spending and saving. However, many older adults may not be aware that part-time work can affect their benefits and taxes.
As a financial professional, you’re in a position to inform your clients about how part-time work may impact their Social Security payments, Medicare costs and tax obligations.
4 considerations retirees working part-time should consider
Share these considerations with your clients so they can plan their financial future and figure out if part-time work makes sense for them.1. Part-time work can temporarily reduce Social Security payments
If a client takes Social Security before full retirement age (between 65 and 67 years of age depending on the year they were born), there is a limit to how much income they can earn and still receive full benefits. In 2019, the limit is $17,640, a $600 increase from 2018. Above that amount, $1 in benefits is withheld for every $2 earned. Once clients reach full retirement age, the money comes back to them in the form of a larger check each month.2. Part-time work can result in paying more taxes
Part-time income can bump retirees into a higher tax bracket for income taxes and costly capital gains taxes, too. That can result in paying significantly more in taxes, according to new IRS guidelines.3. Additional income can complicate Medicare costs
Extra income can also trigger a surcharge on Medicare Part B (outpatient coverage) and Part D (prescription drugs). The extra fees affect retirees with a modified adjusted gross income above $87,000 for individuals or $174,000 for married couples filing jointly. Surcharges can be appealed in certain cases — for instance, if the client experiences a life-changing event that causes a drop in income.4. Clients may face a penalty if they don’t take the required minimum distribution from retirement accounts
When clients hit the age of 72, they must start taking an annual required minimum distribution (RMD) from a traditional IRA, SEP IRA or SIMPLE IRA. Since RMDs are counted as income, they could increase a client’s overall tax rate. Additionally, if a client fails to withdraw the full amount of the RMD or fails to withdraw the RMD by the deadline, the amount not withdrawn is taxed a 50 percent penalty, which can be disastrous for retirement savings.
Before going back to work, retirees should consider how a part-time job impacts their finances. Work with your clients to help them understand how the additional income they earn could affect their Social Security, taxes and Medicare costs.
SM.1225942.05.19
