What you need to know if you are retiring

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The combination of record high prices and record job openings is encouraging more retirees to return to work. The trend called “non-retirement” recovered this spring to pre-pandemic levels.

About two-thirds, or 68%, of retirees would consider returning to work, according to a recent report CNBC All-America Workforce Survey. The pandemic has prompted many people to accelerate their retirement, with 62% of retirees saying they left the workforce earlier than planned and 67% indicating they left at least two years early.

Additionally, 42% of respondents in a National Institute on Retirement Research said they plan to file for Social Security early and continue working, up from 36% in 2021.

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The job opportunities are there: even though vacancies fell in June, there were still some 1.8 open jobs for available workers.

But if you’re already collecting Social Security retirement benefits, there are a few things you should know before you start earning wages again.

Social Security recipients who return to work may earn more in the short term and ultimately increase their monthly benefit checks, according to Joe Elsasser, founder and president of Covisum, a provider of Social Security claim software.

But in the short term, they may be subject to changes in benefits which are worth planning. “That’s the surprise that people want to avoid is not knowing that the earnings test is going to happen and that they’re going to have a penalty,” Elsasser said.

Here are a few things you should know before you retire.

Notify Social Security of your return to work

If you plan to return to work, you should notify the Social Security Administration immediately, Elsasser advised. That way, the agency can start cutting your checks now.

If you don’t, you could be in for an unpleasant surprise early next year when the IRS reports your earnings to the Social Security Administration.

If this happens, you may receive an unexpected letter from the Social Security Administration notifying you that they are suspending your benefit immediately until the previous year’s earnings penalty is paid.

This can disrupt your cash flow when you least expect it.

An earnings penalty can temporarily reduce benefits

If you are over your full retirement age, there is no income penalty if you return to work.

“They can make as much as they want and be able to collect Social Security checks,” Elsasser said.

Full retirement age it’s usually 62 to 67, depending on your year of birth. The Social Security Administration retirement age calculator can help you figure out the age at which you will become eligible for full benefits.

During the calendar year you reach full retirement age, you really have a lot more flexibility for work and income, and the penalty is less.

Joe Elsasser

founder and president of Covisum

If you are between the ages of 62 and your full retirement age and return to work after claiming benefits, you will be subject to an earnings penalty, which has two levels.

At the first level, you can earn up to $19,560 without penalty in 2022. For every $2 you earn above this limit, $1 is deducted from your Social Security benefit.

The second tier applies to the year you reach your full retirement age. In that year, for the months before your full retirement age birth date, $51,960 of earnings are exempt from 2022.

“In the calendar year when you reach full retirement age, you really have a lot more flexibility to work and earn income, and the penalty is less,” Elsasser said.

Although benefits are reduced for the earnings penalty, those who return to work may still earn more in the short term, as well as later when their benefits are increased.

Your benefit check may be larger later

If you are subject to an earnings penalty, your benefit will be recalculated later, and that could mean a larger monthly check.

Take someone with a $2,000 Social Security check who went back to work and earned $40,000. According to Elsasser, based on the earnings penalty, they may not receive a Social Security check for the first five months of the year, but they will receive their $2,000 benefit the remaining months.

Once that worker reaches full retirement age, the Social Security Administration counts the months he didn’t receive benefit checks because of the earnings penalty. It will then adjust the worker’s benefits as if they had claimed later to account for that time.

Ultimately, their benefits increase as if they had delayed benefits, Elsasser said.

“That’s the important thing to remember: It’s not a tax,” Elsasser said of the profit penalty; “benefits are not lost; your benefit is recalculated when you reach full retirement age.”

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