BY THE PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
The old notions about retirement have, well, retired. Many retirees celebrate retirement by going back to work.
According to a Gallup poll, 80 percent of baby boomers in their 50s are in the workforce, along with 50 percent of boomers in their 60s and 30 percent of boomers ages 67 to 68. Either by design or out of financial need, boomers are working longer. Not all of them, however, want or need full-time positions. One in 10 baby boomers works part time. That may increase as employers discover the mix of benefits that will keep high-performing boomers contributing.
Additionally, Gallup reports that boomers are one of the fastest-growing groups of entrepreneurs.
Regardless of the reason, it’s important that retirees thinking about returning to the workforce learn how Social Security benefits, health insurance and taxes wall be affected so they don’t lose benefits or end up in a higher tax bracket. They should keep the following in mind.
Social Security benefits
If you’re 62 or older, you may have already started receiving retirement benefits. However, if you get a new job and expect your income to increase, you’re required to notify the Social Security Administration. If you receive benefits, but are not yet at full retirement age (as defined by the SSA), some of your benefits may be reduced if you earn more than the annual income limit ($15,720 in 2015). Generally, for every $2 you earn above the annual limit, your benefits are reduced by $1.
The SSA full retirement age has been increasing gradually. It’s currently between 65 and 67 years old, depending on the year you were born. (It is age 67 for everyone born in 1960 and later.)
If you’re at the year when you will reach full retirement age but haven’t had your birthday yet, your benefits will decrease, but not by much. Benefits will be reduced by $1 for every $3 you earn above the annual limit ($41,880 in 2015) until your birthday.
You can estimate the reduction in your annual benefits by using the SSA’s retirement earnings test calculator at www.ssa.gov.
Once you reach full retirement age, your benefits wall no longer be reduced, no matter how much you earn.
If you return to work after starting to receive benefits, you may be able to receive a higher benefit based on those earnings. The SSA automatically recalculates your benefit amount after the additional earnings are credited to your earnings record. Moreover, you can repay all SSA benefits collected to date with no interest, and the benefits will be reset to a higher number based on your age and past earnings.
Going back to work might mean more money, but it also might bump you into a higher tax bracket. In addition, extra distributions or benefits may count as income. You could also find yourself in a higher tax bracket by taking pension distributions on top of a salary or by collecting Social Security benefits while you continue working. Crunch the numbers to see how close your current income is to the next tax bracket.
As much as 85 percent of your Social Security benefits can be taxable if your other income, including tax-exempt interest plus half of your Social Security, exceeds the threshold. Thresholds are $25,000 for single or head of household, $32,000 for married filing jointly, and zero for married filing separately.
Health insurance is one of the biggest reasons people under age 65 return to the workforce. If you’re 65 or older and already covered by Medicare, check with your employer’s human resources department about how insurance would work with Medicare. You can also view the publication “Medicare and Other Health Benefits: Your Guide to Who Pays First” at www.medicare.gov.
According to Medicare’s website, Medicare Part B insurance premiums range from $104.50 to $335.70 per month as adjusted gross income ranges from $85,000 (single filers or married filing single) or $170,000 (married filing jointly) to $214,000 (single filers), $129,000 (married filing single) or $428,000 (married filing jointly).
Some people might find themselves paying for Part A hospital insurance, which is $407 a month, if they apply for Medicare before they are eligible for Social Security.
If you have private health insurance, compare your benefits and coverage to what might be available from your new employer. Although group plans tend to be cheaper than individual policies, it might make sense to keep what you have rather than canceling and reapplying at a later date. This is especially true if you have retiree health insurance from a former employer.
For more information about Pennsylvania Institute of Certified Public Accountants (PICPA), visit www. ineedacpa.org.