Reduced SS benefits: If your plan is to work while collecting Social Security (SS) benefits prior to your full retirement age of 67, your SS income might be reduced by the earnings test. If your wages or self-employment income exceed a certain threshold -- $15,120 per year in 2013 -- then your SS income is reduced by $1 for every $2 of earnings over the threshold.
For example: suppose you're age 63 (four years younger than your full retirement age of 67), and you've started your SS income. If you earn $17,120 in wages -- $2,000 more than the threshold -- then your Social Security benefits will be reduced by $1,000.
It's important to understand that the amount of benefits that are reduced is not "lost." Once you reach your full retirement age, your monthly SS income will be increased permanently to reflect the months that benefits were reduced.
Also, you will still pay SS taxes on your wages or self-employment income, regardless of whether your Social Security benefit is reduced.
Tax on SS benefits: No retiree pays taxes on more than 85 percent of their SS benefits, and that percentage can be less.
For more information on tax deferred retirement plans and understanding the tax implications on your retirement, contact us at 206-522-0110 for a consultation.