Ask the Expert: Should I take Social Security while working?

I plan to take Social Security at 66, which is my full retirement age (FRA). But I’ll continue working. Will my taxes go up when I collect Social Security?

That’s a very good question. Too often, people forget that taking Social Security while working may affect their tax bill.

The tax treatment of Social Security benefits depends on your “combined income.” That’s your adjusted gross income (which includes distributions from your retirement accounts as well as your earnings from work), plus half your Social Security benefits, plus your tax-exempt interest income.

If you’re an individual tax filer with “combined income” between $25,000 and $34,000, or married filing jointly with “combined income” between $32,000 and $44,000, up to 50% of your Social Security benefit may be taxable. And individuals with “combined income” of more than $34,000, and joint tax filers with “combined income” over $44,000, may pay taxes on up to 85% of their benefits.

This is a good reason to consider postponing Social Security until you stop working if you can comfortably cover your living expenses without taking your benefit. The delay would minimize the potential impact on your tax bill and also boost your future retirement income. Your Social Security benefit increases by about 8% a year in delayed retirement credits (DRCs) for up to four years when you postpone taking it after you reach FRA.

For example, if your monthly Social Security check at 66 is $2,800, delaying your application until you’re 70 would boost it to about $3,696, plus any annual inflation adjustments. DRCs accrue on a monthly basis — and your future cost of living adjustments will be worth more because they’re applied to a bigger base amount.

The bottom line

Up to 85% of your Social Security benefit may be taxable.

More information

bit.ly/SSAretirementplannertaxes

bit.ly/SSAdelayedretirementcredits