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Q&A With Scott Burns: Taking Social Security Benefits While Working Is Often A Bad Idea
IMHO the conclusion (headline) is correct, but the analysis is wrong.
He writes that the tax bill may double. First, this is the wrong perspective - what matters the most is the tax rate on that incremental income. For the person posing the question (in the column) the answer is 10%-15%, which is about what his SS benefits would be taxed if deferred.
Second, this particular person's taxes will go up 50%, not 100% (i.e. Burns exaggerated by 50%). Details at bottom of post. The writing is designed to shock, not provide illumination.
In the last paragraph he says that if you can shelter the extra money in a 401K, then your taxes won't go up much. But that's true for anyone, not just the teachers and public employees he is advising differently.
The advice in that paragraph - to draw SS earlier than needed and add it to personal liquid savings to build up retirement savings runs counter to most advice, including Burns' - that investing in deferred SS is generally superior to trying to invest the money yourself.
FWIW, the original intent of file and suspend (which survives the recent SS changes) was to allow older workers who had begun drawing SS to go back to work and build up more credits by not drawing SS if they didn't need it. Precisely what the headline says, even if the body of the column is suspect.
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Assumptions and tax calculations: - spouse's SS is $10K (2/3 x $15K; 2/3 for age 62, $15K for average SS amount) - his SS is $24K ($88K salary is about 3/4 of max subject to FICA; so take 3/4 of max SS benefit of $32K - standard deduction with both taxpayers over age 65 - maximum ($24K) contributed to 401k
Without his drawing SS, their taxes would be $6361, with SS, $9551.
Comments
He writes that the tax bill may double. First, this is the wrong perspective - what matters the most is the tax rate on that incremental income. For the person posing the question (in the column) the answer is 10%-15%, which is about what his SS benefits would be taxed if deferred.
Second, this particular person's taxes will go up 50%, not 100% (i.e. Burns exaggerated by 50%). Details at bottom of post. The writing is designed to shock, not provide illumination.
In the last paragraph he says that if you can shelter the extra money in a 401K, then your taxes won't go up much. But that's true for anyone, not just the teachers and public employees he is advising differently.
The advice in that paragraph - to draw SS earlier than needed and add it to personal liquid savings to build up retirement savings runs counter to most advice, including Burns' - that investing in deferred SS is generally superior to trying to invest the money yourself.
FWIW, the original intent of file and suspend (which survives the recent SS changes) was to allow older workers who had begun drawing SS to go back to work and build up more credits by not drawing SS if they didn't need it. Precisely what the headline says, even if the body of the column is suspect.
---------------------------------
Assumptions and tax calculations:
- spouse's SS is $10K (2/3 x $15K; 2/3 for age 62, $15K for average SS amount)
- his SS is $24K ($88K salary is about 3/4 of max subject to FICA; so take 3/4 of max SS benefit of $32K
- standard deduction with both taxpayers over age 65
- maximum ($24K) contributed to 401k
Without his drawing SS, their taxes would be $6361, with SS, $9551.