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Social Security Mailbox

Do I Lose in Taxes If I Collect Benefits and Work?

Maybe, but here are reasons to stick with the job

Q. Am I hurting myself financially and tax-wise by continuing to work full time while I receive Social Security benefits?

A. By continuing to work, you are probably helping — rather than hurting — your financial situation.

See also: What's the best age to claim benefits?

The most obvious reason is that your job gives you a regular income, which helps pay for your living expenses. If you stop working, you may have to start spending money you've saved for retirement. By staying on the job, you can postpone the day when you have to dip into your retirement savings. This delay could be valuable because one of the great challenges of retirement is to avoid running out of money.

Another factor to consider is whether your employer offers a 401(k) plan and matches a portion of your contributions. You may already be part of your company's plan. With or without a match, a 401(k) plan enables you to accumulate retirement savings. In fact, your income from Social Security could be used to help boost your savings.

Staying on the job also could increase your Social Security benefits. Those payments are based largely on your earnings history and your highest 35 years. If your yearly earnings at your current job are large enough to replace one or more of your low-earnings years, your monthly benefits could go up.

Finally, if you have health insurance at work and you have postponed enrolling in Medicare Part B, you are saving money on Part B premiums by staying where you are.

If there is a negative aspect to continuing to work, it probably involves taxes. While Social Security benefits are welcome, they are added to your annual income and may boost your federal income taxes.

The law says that you have to pay federal income taxes on your Social Security benefits if you file a tax return as an individual and your total income is more than $25,000. If you and your spouse file a joint tax return, you have to pay those taxes if your total income is more than $32,000.

What is the alternative? You could quit work and give up your salary in order to lower your income taxes. But you would lose the opportunities that accrue to you from continued employment. So, if you are able to work, that may be your best choice.

Also of interest: Paying taxes on Social Security. >>

Stan Hinden, a former columnist for the Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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