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Working for Extra Income

Just because you're retired doesn't mean you're not working.
Although the traditional retirement age is 65, many people retire earlier - often in their early 60s. And many other people go on working into their 70s or longer. In some cases, you can collect a pension from one job while working full-time at another. Or you can work part-time for the same company from which you've retired. Check first, though. Sometimes there are restrictions on what's known as double-dipping, or collecting a salary and a pension from the same employer.
LIMITS ON WORKING You can work and collect Social Security at the same time, but there are limits on the amount you can earn between 62 and the month you reach your full retirement age (FRA) without having some or all of your annual benefits withheld. Those limits, which are adjusted every year, are age-based. Once you reach full retirement age, you can earn as much as you like without losing any Social Security income. The annual cap applies to earned income only, not to money you receive from pensions, investment earnings, or government benefits.
When you You can earn up to After which you'll lose
are younger than full retirement age $18,960 in 2021 $1 for every $2 you earn over limit
reach full retirement age $50,520 in 2021 $1 for every $3 you earn over limit
are older than full retirement age No limit No penalty

The good news is that you don't actually lose the money that's withheld because you earn more than the income limit. Rather, your benefits will be increased when you reach full retirement age to make up for the amounts that you didn't receive earlier.

DEALING WITH SOCIAL SECURITY If you're working and collecting benefits, you must estimate your earnings for the Social Security Administration (SSA). If you expect to earn more than the limit for any year, the SSA reduces the number of checks you receive based on your estimate. If it turns out that you earn less than you estimated, then the SSA will issue a check to make up what you're owed. If you earn more than you estimated, you'll have to repay the SSA any excess benefits you were paid, either in installments or a lump sum. Trying to keep the SSA in the dark is a bad idea. If you don't report that you're working, you'll have to pay a penalty as well as return any overpayment of benefits you do receive.

STARTING AGAIN You may be able to change your mind about the right time to begin collecting your Social Security benefits. The only catch is that you must act within a year of receiving your first check. What you have to do is let Social Security know that you want to stop the benefits, usually because you have decided to go back to work full-time

For example, if you retire at 62 and go back to work at 63, you can end your benefits, repay what you've received, and postpone collecting until you actually retire. Since you'll be contributing again, you're likely to increase the base amount on which the new benefit is figured.

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SPENDING VERSUS INVESTING One of the major decisions you'll face if you work after you retire is what to do with your earnings. If you can live on investment income or a pension from your previous job, you can invest some of your current earnings in a retirement program, such as an individual retirement arrangement (IRA) or a salary reduction plan. That allows a portion of your post-retirement earnings to accumulate tax-deferred so in the future you'll have more assets to convert to income. When you do stop working for good, or if you need the money in an emergency and are older than 59 1/2, you have the added advantage of being able to withdraw IRA money for any purpose without owing a penalty.
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You may be thinking about working after retirement because you need more money to live on, or because you'd like extra cash to spend on things you enjoy. Working part-time could mean you'd continue to be eligible for your full Social Security benefits. For example, if you were between ages 62 and 65 and earned $200 a week, you'd still be eligible for your full Social Security benefit. But the extra $800 a month could make the difference between feeling secure and being forced to cut back on necessities, or between being able to take a cross-country trip and having to stay home. Many employers like part-time workers because they don't have to provide health insurance, retirement plans, and other benefits. If you've got retirement health benefits, for example, or qualify for Medicare, you don't need coverage at your post-retirement job. You may also find part-time positions that are open to people who can work during school hours, when young people are in class.

WHEN IT ISN'T WORK Though there are limits on what you can earn before you begin to lose Social Security income, there are no limits on how busy you can be. Many charitable, cultural, and social service organizations depend on volunteers to make their programs run, and they are always looking for people who have time to help out. As a bonus, you may be able to take a tax deduction for your transportation expenses.

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Investment earnings from a Roth or Traditional IRA can help fund new investments to produce additional retirement income.

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