The freedom of working past full retirement age
For those born in 1960 or later, full retirement age is 67. By waiting until age 70 to claim your Social Security benefits, you've already received all possible delayed retirement credits, resulting in your highest possible monthly payment. At age 70, the Social Security earnings test is eliminated, meaning you can earn as much as you like from your job without your Social Security benefit being reduced. This allows you to maximize both your earned income and retirement benefits.
How delayed retirement credits maximize your benefits
Delaying the start of your benefits past your full retirement age, up to age 70, provides a guaranteed increase to your monthly payment through delayed retirement credits. For each year you wait past your FRA, your benefit increases by 8%. By waiting until age 70, you've maxed out these credits, securing the highest possible benefit amount.
Earnings test vs. full retirement age
The earnings test applies to those who claim benefits before their full retirement age (FRA), potentially reducing benefits if earnings exceed a limit. However, this test does not apply once you reach your FRA. At age 70, you are past your FRA, making the earnings limit irrelevant to your benefits.
The potential for a higher benefit calculation
Continuing to work full time at age 70 can potentially increase your Social Security benefit. Your benefit is based on your 35 highest-earning years. If your current full-time salary is higher than one of your lower-earning years, the Social Security Administration will automatically recalculate your benefit, replacing the lower year with a higher one.
Understanding the tax implications
While working at age 70 won't reduce your Social Security benefits, your benefits could be subject to federal income tax depending on your combined income. Combined income includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits. Your full-time income can increase your combined income, potentially leading to taxation of up to 85% of your benefits. Consulting a tax professional is recommended.
Comparison of working scenarios
| Feature | Working Before Full Retirement Age (e.g., age 62) | Working After Full Retirement Age (e.g., age 70) |
|---|---|---|
| Earnings Test | Yes, annual earnings limit applies. Benefits are reduced if earnings exceed the limit ($1 for every $2 over the limit for those under FRA). | No, the earnings test is eliminated. You can earn any amount of money without a reduction in benefits. |
| Benefit Recalculation | Benefit reduction can be recouped at FRA through higher monthly payments. | Higher earnings may replace a lower-earning year, potentially increasing your monthly benefit. |
| Delayed Retirement Credits | Not applicable; claiming early results in a permanently reduced benefit. | Benefits are increased by 8% per year for each year delayed past FRA, up to age 70. |
| Maximum Benefit | Receive a lower, permanently reduced benefit amount. | Receive the maximum possible monthly benefit. |
Key considerations for your retirement plan
Working at age 70 is a strategic choice that can improve your financial standing by supplementing income and potentially increasing your benefit amount. Careful planning is needed to understand the tax implications. The Social Security Administration website offers valuable resources, including calculators and information on how earnings affect benefits. You can find more information directly from the source at the Social Security Administration website.
Making the most of your income sources
Working at age 70 while collecting Social Security can be highly beneficial, combining earned income with a maximized benefit payment. Understanding the rules and using available tools can help ensure a secure retirement. Consulting a financial advisor specializing in retirement planning can also help create a personalized strategy.
