Dear MarketWatch,
I am 67 years old and have not yet received my Social Security benefits.
I am still working. I actually got a $30,000 raise in July 2023. I’m trying to save for retirement. With my new salary, I can afford to invest more in my government savings plan, but of course I know I’ll never make up for all the years I wasn’t able to contribute. I will receive a pension from my government agency.
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I thought maybe I could take my Social Security now, pay my bills with it, and take money out of my paycheck to put into my government savings plan. I am allowed to contribute up to $30,000 per year, as a pre-tax catch-up. I have $25,000 in my government savings plan. It’s not much, but I’m saving. I don’t have a financial advisor because no one will accept a total investment of $25,000 – it would have to be much more than that.
Can you make any recommendations?
Try to save
Dear Trying,
You’re trying and it’s much better than giving up on your retirement savings goals – remember that.
As for your Social Security, the good news is that you’re past full retirement age, so you’ll receive more than 100% of the benefits you’re owed. The uncertain news: Even though you’ll get bigger benefits, if you’re still working, you’ll also have to pay more for that money.
There’s no rule against collecting Social Security while working, but you should consider the impact it might have. For people who have not reached full retirement age, their benefits may be temporarily reduced (even if they get that money back). This does not apply to you since you have passed FRA, but it is important to note for any other readers who may not have reached this stage yet.
What will However, it is taxes that impact you. If your combined income, which is all earned income plus 50% of your benefits, is between $25,000 and $34,000 per year for singles or between $32,000 and $44,000 per year for married filing jointly, Social Security benefits can be taxed up to 50%. %. For single people whose combined annual income is more than $34,000, or more than $44,000 for married people filing jointly, the percentage of taxed benefits rises to 85%, according to the Social Security Administration.
You mentioned that your raise was $30,000 and that you are allowed to invest up to $30,000 into your government plan. If you were living comfortably before your raise, consider investing more in your retirement plan because you may not feel it as much as you did before the raise. Of course, you have to live, so contribute as much as you can without putting yourself in a perilous situation.
You may not have as much money as you’d like in your retirement savings account, but you also have a pension, which isn’t common these days (at least for workers private sector). If you continue to wait to claim Social Security benefits, you’ll get up to 8% per year that you delay until age 70. This extra money can definitely help you pay your bills in the future and would mean paying less taxes now. .
What matters most is what you do now to take care of yourself in the future. There are many reasons why people are unable to contribute to their retirement plans: cost of living, raising a family, education, healthcare expenses, emergencies, etc. The fact that you’re doing the numbers now and still working (and with a raise, no less) puts you in a good position to optimize your strategies for your later years.
