People near retirement age may find that they may
not want to stop working altogether. Knowing the Social
Security payment rules will help you make the best
choices about how much you'd like to work and how
much you should earn. New limits, effective in 2008,
may make part-time working more worthwhile.
Easing into retirement
Increasingly, Americans are interested in "phased
retirement." In phased retirement, you wind
down a full-time job or career. Before leaving the
workforce, you intend to work part-time, often with
more flexibility.
What might cause you to consider a phased retirement?
Among the possible reasons:
• Sale of a business. Once you've sold
the company you've built and pocketed the proceeds,
you feel you're ready for another challenge - perhaps
one that's not so stressful.
• Company restructuring. Your employer
may be downsizing, or your operating division might
be sold. You could lose your job in your 50s or 60s
yet feel you'd like to keep working at a reduced pace.
• Pension eligibility. Some workers are
entitled to a lifetime pension after 20 or 30 years
of service. This income means you no longer have to
put in 50-hour weeks, but you might not to be idle
either.
• Family issues. You might want to spend
time with an aging parent, for example, or get to
know your grandchildren.
Full retirement age
If you're contemplating phased retirement for any
reason, a key date is your "full retirement age"
(FRA). The lowest FRA is 65, for people born during
1937 or earlier. The FRA increases according to the
year when you were born. For instance, a person born
in 1955 has an FRA of 66 and 2 months, while everyone
born in 1960 or later must wait until 67 to achieve
FRA. The Social Security Administration offers an
FRA calculator at www.ssa.gov/pubs/ageincrease.htm
Regardless of your FRA, no one can receive retirement
benefits until age 62.
Your FRA has a critical relationship to the amount
of money you can earn without a reduction in Social
Security benefits. Before the month you reach your
FRA, your check may be reduced if you have certain
amounts of earned income. In 2008, the earnings penalty
kicks in at $13,560 of earned income if you won't
reach FRA this year. Above that amount you'll lose
$1 in benefits for every $2 of earned income in 2008.
Example: Alice Jones is 63 this year. She
has left her corporate job and earns $20,000 as a
consultant in 2008. Alice will be $6,440 over the
limit in 2008: $20,000 minus $13,560. Divide $6,440
by 2 to get the earnings penalty. That result is $3,220,
which will be subtracted from Alice's Social Security
checks,
The earnings penalty eases during the calendar year
you reach FRA. In 2008, you can earn up to $36,120
in the months before you reach FRA. Over that amount,
you'll lose $1 in benefits for every $3 of earned
income. Beginning the month you reach FRA, you can
earn any amount and collect an undiminished Social
Security check.
Required minimum distributions
You also should keep in mind the rules of required
minimum distributions (RMDs) from retirement plans
while considering phased retirement:
• You have to begin RMDs from your IRA
after age 70-1/2, regardless of whether you're still
working.
• If you're working as an employee, you
do not have to take RMDs from the company-sponsored
retirement plan -- as long as you do not own 5% or
more of the company.
• If you are a 5%+ owner, you have to
begin RMDs from the company plan after age 70-1/2,
regardless of whether you're still working.
Therefore, you might plan to cut back on the hours
you work or even stop working altogether after age
70-1/2. The income from RMDs can make up for reduced
earnings.
|
Average
Monthly Social Security
Benefits - January 2008
|
|
All Retired
Workers
|
$1,079
|
|
Aged
Couple, Both
Receiving Benefits
|
$1,761
|
|
Widowed
Mother
and Two Children
|
$2,243
|
|
Aged
Widow(er)
Alone
|
$1,041
|
|
Maximum
Social
Security Benefit at
Full Retirement Age
|
$2,185
|
| Source:
Social Security Administration |
