You may be one of many Americans who plan to work into retirement. Some report they need to work because their savings declined over the past several years, while others say they choose to work because of the greater sense of purpose and engagement that working provides.
Whatever your reason for continuing to work into retirement, here are some tips to get the greatest benefit from your efforts.
Consider delaying Social Security. You can start receiving Social Security retirement benefits as early as age 62, but if you continue to work it may make sense to delay taking it until as late as age 70. This is because your Social Security benefit may be reduced or be subject to income tax due to your other income. In addition, your Social Security monthly benefit increases when you delay starting the retirement benefit. These increases in monthly benefits stop when you reach age 70.
Pay attention to bracket-bumping. Keep in mind that you may have multiple income streams during retirement that can bump you into a higher tax bracket and make other income taxable if you’re not careful. For example, Social Security benefits are only tax-free if you have less than a certain amount of adjusted gross income ($25,000 for individuals and $32,000 for married filing jointly in 2022), otherwise as much as 85 percent of your benefits can be taxable.
Required distributions from pensions and retirement accounts can also add to your taxable income. Be aware of how close you are to the next tax bracket and adjust your plans accordingly.
Be smart about health care. When you reach age 65, you’ll have the option of making Medicare your primary health insurance. If you continue to work, you may be able to stay on your employer’s health care plan, switch to Medicare, or adopt a two-plan hybrid option that includes Medicare and a supplemental employer care plan.
Look over each option closely. You may find that you’re giving up important coverage if you switch to Medicare prematurely while you still have the option of sticking with your employer plan.
Consider your expenses. If you’re reducing your working hours or taking a part-time job, also consider the cost of your extra income stream. Calculate how much it costs to commute and park every day, as well as any other work-related expenses. Now consider how much all those expenses amount to in pre-tax income. Be aware whether the benefits you get from working a little extra are worth the extra financial cost.
Time to downsize or relocate? Where and how you live can be an important factor determining the kind of work you can do while you’re retired. Downsizing to a smaller residence or moving to a new locale may be a good strategy to pursue a new kind of work and a different lifestyle.
Focus on your deeper purpose. Use your retirement as an opportunity to find work you enjoy and that adds value to your life. Choose a job that expresses your talents and interests, and that provides a place where your experiences are valued by others.
The SECURE Act 2.0, passed by Congress in late 2022, features numerous ways for you to save more money in your tax advantaged retirement accounts. Here are several of the bill’s provisions and what they mean for you.
Money can continue to grow tax deferred. If you turn 72 in 2023 or later, you can keep money in a tax-deferred IRA or 401(k) for another 12 months to help the account continue growing before starting to withdraw funds. This retirement benefit is now available thanks to the required minimum distribution age being raised from age 72 to age 73. The age will increase again from 73 to 75 in 2033.
Action: Review your retirement account distribution needs and use this extra time to help make your distributions more tax efficient. For example, if you must earn an additional $10,000 before you hit the next highest tax bracket, consider pulling more taxable income out of your retirement account to take advantage of this lower rate. Or use the extra time to consider converting funds tax-efficiently into a Roth IRA.
Be aware of auto enrollment. The government wants you to save for retirement, so the new law allows businesses to automatically transfer a greater portion of your paycheck into their retirement plan. The maximum contribution that can now be automatically deferred into your employer’s 401(k) plan increases from 10% to 15%.
Action: While saving more for retirement is a great idea, this automatic participation does not account for your particular financial needs. So be aware of the possibility that you will automatically be contributing to your retirement account and independently determine what you can afford to put towards retirement. Make any adjustments if necessary, as you are permitted to opt out of auto enrollment. Remember, you also need to build an emergency fund and pay your bills!
Take advantage of higher catch-up limits. Starting in 2024, the $1,000 catch-up contribution for IRAs will receive an annual cost-of-living adjustment in increments of $100, while the $7,500 catch-up contribution for 401(k)s will increase to at least $10,000. This higher 401(k) catch-up limit will also be indexed for inflation starting in 2025. The additional catch-up contribution is available if you’re age 50 or older.
Action: Review the annual savings limit for your retirement savings account, including the catch-up amount if you are 50 years or older. Then make adjustments to your retirement savings plan as soon as possible to take advantage of the higher savings limits.
Here are some tips to get your finances in tip-top shape for 2023.
Know your net worth. The first step to improving your finances in 2023 is to create a snapshot of your current financial situation. So note all your assets, then subtract all your liabilities (what you owe others) to calculate your net worth. When done on a regular basis, you will be able to evaluate changes to your financial status and identify steps to reach your financial goals.
Plan for hardships. If the pandemic has taught us anything, it’s to plan for the unexpected. Now is the time to prepare by building an emergency fund that covers six or more months of expenses.
Prepare for a lower refund. The 2021 tax year saw increases to the child tax credit and the dependent care credit, resulting in a big jump in tax refunds for many taxpayers. These changes, however, were not extended to 2022. If you plan to take advantage of either of these two credits on your 2022 tax return, be prepared for a possible decrease in your refund.
Create a debt repayment plan. Design a plan to pay off your existing debts and try to avoid taking on any new debt. Pay special attention to credit card debt, as inflation is vastly increasing the cost of this debt every month! Also consider whether consolidating your debt is a good option for you.
Save for retirement. Plan for your future self by building your retirement fund. In 2023 you can contribute up to $22,500 in your 401(k), plus another $7,500 if you’re 50 or older. Keep in mind your company may provide matching contributions up to a stated percentage of compensation. And you may be able to supplement this account with contributions to IRAs and/or other qualified plans.
Review and re-balance your portfolio. Review your investments periodically and reallocate funds to reflect your main objectives, risk tolerance, and other personal preferences. This will put you in a better position to handle the ups and downs of the markets.
Set a date to review your estate. Review your estate and legal documents at least once a year, in addition to whenever you experience a significant change in your life. Now is a good time to review your will, trust documents, beneficiary designations, powers of attorney, healthcare directives, and other estate- and legal-related documents.
Your 2023 Social Security Benefits Find out how your benefits have changed
Average Retirement Benefits Starting January 2023
All workers in 2022: $1,681/mo
All workers in 2023: $1,827/mo (+$146)
The 2023 maximum Social Security retirement benefits for a worker retiring at full retirement age: $3,627/mo
An 8.7% cost of living increase for Social Security retirement benefits and SSI payments begins with December 2022 benefits (payable in January 2023).
Increase your Social Security retirement benefits by 5 to 8% per year when you delay applying until you’re age 70.
Social Security Revenues & Expenditures
Revenue Sources = $1.09 trillion
3.5% – Taxation of benefits
6.4% – Interest
90.1% – Payroll taxes
Expenditures = $1.14 trillion
0.6% – Administrative expenses
0.4% – Railroad Retirement financial interchange
99.0% – Benefit payments
SOURCE: 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Table Il.B1.
2023 Social Security & Medicare Tax Rates
If you work for someone else…
Your employer pays 7.65%
You pay 7.65%
If you’re self-employed…
You pay 15.3%
NOTE: The above tax rates are a combination of 6.2% for Social Security and 1.45% for Medicare. There is also a 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.
Item
2023
2022
Change
Maximum amount you may pay in Social Security taxes
$9,932.40
$9,114.00
+ $818.40
Maximum earnings amount Social Security will tax at 6.2%
$160,200.00
$147,000.00
+ $13,200.00
165+ million people work and pay Social Security taxes
Social Security has provided financial protection for Americans since 1935
Social Security Payments Explained
Social Security (SS) retirement benefits are for people who have paid into the Social Security system through taxable income.
Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have paid into the Social Security the system through taxable income.
Supplemental Security Income (SSI) benefits are for adults and children who have disabilities, plus limited income and resources.
Maximum SSI Payments
Filing Status
2023
2022
Change
Individual
$914/mo
$841/mo
+ $73
Couple
$1,371/mo
$1,261/mo
+ $110
How does Social Security work?
When you work, you pay taxes into Social Security.
The Social Security Administration uses your tax money to pay benefits to people right now.
Any unused money goes into Social Security trust funds and is borrowed by the government to pay for other programs.
Later on when you retire, you receive benefits.
Here’s how you qualify for retirement benefits
When you work and pay Social Security taxes, you earn credits toward benefits. The number of credits you need to earn retirement benefits depends on when you were born.
If you were born in 1929 or later, you need 40 credits (10 years of work) to receive retirement benefits
You receive one credit for each $1,640 of earnings in 2023
4 credits maximum per year
Did you know you can check your benefits status before you retire?
You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
If it doesn’t show earnings from a state or local government employer, contact them. The work may not be covered within Social Security.
The 2022 maximum Social Security retirement benefits a worker retiring at full retirement age: $3,345/mo
DID YOU KNOW …
97% of U.S. citizens over age 60 either receive Social Security or will receive it.
1 in 4 seniors expect it to be their primary source of income.
Social Security pays benefits to more than 70 million people including retirees, children and surviving spouses.
2022 SOCIAL SECURITY AND MEDICARE TAX RATES
If you work for someone else…
Your employer pays 7.65%
You pay 7.65%
If you’re self-employed…
You pay 15.3%
NOTE: The above tax rates are a combination of 6.2% Social Security and 1.45% for Medicare. There is also 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.
Item
2022
2021
Change
Maximum amount you may pay in Social Security taxes
$9,114.00
$8,853.60
+ $260.40
Maximum earnings amount Social Security will tax at 6.2%
$147,000
$142,800
+ $4,200
165+ million people work and pay Social Security taxes
Social Security has provided financial protection for Americans since 1935
SOCIAL SECURITY PAYMENTS EXPLAINED
Social Security retirement benefits are for people who have paid into the Social Security system through taxable income.
Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have paid into the Social Security the system through taxable income.
Supplemental Security Income benefits are for adults and children who have disabilities, plus limited income and resources.
MAXIMUM SSI PAYMENTS
Filing Status
2022
2021
Change
Individual
$841/mo
$794/mo
+ $47
Couple
$1,261/mo
$1,191/mo
+ $70
HOW DOES SOCIAL SECURITY WORK?
When you work, you pay taxes into Social Security.
The Social Security Administration uses your tax money to pay benefits to people right now.
Any unused money goes into Social Security trust funds and is borrowed by the government to pay for other programs.
Later on when you retire, you receive benefits.
HERE’S HOW YOU QUALIFY FOR RETIREMENT BENEFITS
When you work and pay Social Security taxes, you earn credits toward benefits. The number of credits you need to earn retirement benefits depends on when you were born.
If you were born in 1929 or later, you need 40 credits (10 years of work) to receive retirement benefits
The earnings needed to a credit in 2022 is $1,510
4 credits maximum per year
DID YOU KNOW YOU CAN CHECK YOUR BENEFITS STATUS BEFORE YOU RETIRE?
You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.
It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.
If it doesn’t show earnings from a state or local government employer, contact them. The work may not be covered within Social Security.
Common New Year’s resolutions are to lose weight or become more active. Perhaps 2021 is the year to shift focus. Here are seven tips to help you become more financially fit.
Create a budget. It’s easy to get into financial trouble if you spend more than you earn. By watching your budget more carefully, you might be surprised by how much you spend in certain areas of your life. Many banks and credit unions offer budgeting tools directly on their websites.
Get a free credit report. You can obtain a free copy of your credit report from each of the three major credit reporting agencies every 12 months. Reviewing your reports regularly can help ensure the data in your report is accurate and allows you to contact creditors to dispute any errors.
Pay down debt. Start chipping away at your debts through a series of regular payments. Begin with bills that have the highest interest rates. Research whether it makes sense to consolidate debts at a more reasonable interest rate.
Review your investments. With recent changes in Washington, D.C. and market volatility, reviewing your investments is more important than ever. Protect yourself against risks by diversifying across different classes of investments. If you have not developed an asset allocation plan, do so. If you have, adjust your portfolio to ensure it is still meeting your objectives.
Plan ahead for retirement. Take advantage of tax-favored retirement plans such as a 401(k) at work. Both the contributions and earnings are tax-deferred and can compound over time. The 401(k) limit for 2021 is $19,500 ($26,000 if you’re age 50 or over). Also consider contributing to an IRA, which has a contribution limit of $6,000 ($7,000 if you’re age 50 or older).
Check your insurance coverage. Things can change over time, so don’t assume the coverage you acquired years ago still provides adequate protection for your family or business. Take a look at your policies to determine if adjustments are needed.
Save for emergencies. And finally, would you be financially prepared if your business failed or you lost your job? The COVID-19 pandemic has reminded us the importance of establishing an emergency fund that can last for several months if you lost your salary or business revenue dramatically declines.
Acting on all these tips may seem a bit overwhelming. By focusing on a few now, before you know it, your financial wellness will improve over time.
