In today’s economic environment, you may decide you have to
work beyond the "normal" retirement age. Here's how extending your
work life can affect your taxes and retirement benefits.
"Normal" retirement age is not a fixed number. For
social security purposes, the "full" retirement age threshold ranges
from 65 to 67, depending on your birth date. However, you can elect to start
receiving lower payments as early as age 62, or you can maximize your benefits
by forgoing them until you're 70. Once you reach age 70, there's no incentive
to postpone your benefits further since you'll already have reached your
maximum.
* Earnings limit
If you're working, you probably should forgo the early
payment option. Benefits received before full retirement age will be reduced by
$1 for every $2 earned over an annual limit (currently $15,120). However, you
will receive a compensating increase when you do reach full retirement age, and
your payments will not be reduced thereafter no matter how much you earn.
* Taxable benefits
Whether or not you draw benefits, you'll continue to pay
social security and Medicare taxes on any income you earn from wages or
self-employment. Up to 85% of your benefits may become subject to income tax,
depending on the amount of your other income.
* Medicare
Medicare eligibility begins the year you reach age 65. The
program encompasses four types of coverage: Medicare A (hospital insurance),
Medicare B (general medical insurance), Medicare C (Medicare Advantage), and
Medicare D (prescription drug coverage).
It's wise to sign up for Medicare A as soon as you're
eligible. There's generally no cost, and the program provides supplemental
coverage even if you're already insured at work. Medicare B and D are neither
free nor mandatory, but the monthly premiums are reasonable, and either may be
used as a stand-alone program or in conjunction with a private plan. If you
have "creditable coverage" at work (i.e., coverage that's at least as
good as Medicare), you can postpone signing up for Medicare B and/or D until
you're no longer employed.
Your employer's plan also may offer Medicare C, which
provides for private programs administered under contract with the government.
These plans typically merge Medicare A and B benefits with other coverage.
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