Working Past 66: The Impact on Social Security Benefits

A reader of my recent article on when to take Social Security benefits asked whether my analysis would change if a person does not retire at age 66 and plans to work until age 70—and is earning more now than he expects to earn at retirement. That’s a good question.

Many people don’t want to retire as soon as they can—or feel they cannot afford to. But working past what the Social Security Administration in the US calls your “full retirement age” (currently 66, for those born between 1943 and 1954) can have significant tax consequences.

A portion of your Social Security benefits would be taxed if you have substantial income—whether from salary or investments. As the Display below shows, the size of the portion depends on your combined income, which the Internal Revenue Service defines as adjusted gross income (AGI) plus nontaxable interest plus 50% of your Social Security benefits. The benefits are taxed at the same rate you pay for the rest of your income.

In most cases, the taxes on your Social Security benefits would not change the results of our analysis of when to start taking your Social Security benefits. If you have sufficient core capital (enough capital to fund your spending needs for life, even if market returns are poor), whether you begin to take your benefits at 66 or at 70 is not likely to have a big impact on your wealth or your ability to meet your spending needs. If you don’t yet have enough core capital, you can benefit by waiting to age 70 and earning delayed retirement credits. Regardless, you should consult with your tax advisor to make sure you understand how your benefits will be taxed.

The views expressed herein do not constitute, and should not be considered to be, legal or tax advice. The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation. 

Daniel B. Eagan is Head of the Wealth ManagementGroup at AllianceBernstein.

Daniel B. Eagan

Daniel B. Eagan is a Managing Director and the Head of Bernstein’s Wealth Management Group; he assumed his current role in 2011. A member of the Private Client Investment Policy Group, Eagan joined Bernstein in 2001 as a senior portfolio Manager; in 2003 he assumed the leadership of Bernstein’s private client practice in the Northwest. Prior to joining the firm, Eagan was a senior portfolio manager and managing director with BlackRock for seven years. From 1986 to 1994, he worked in investment consulting, most recently with Mercer Investment Consultants. Eagan earned a BS in finance from the University of Illinois and an MBA with distinction from DePaul University.

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