Scanning news about the labor market today, you’d think that pickleball courts and golf courses should be deserted. The pandemic-fueled retirement wave has pulled into reverse. Many who retired in the past two years are returning to work—or thinking about it.
A CNBC survey found 68% of those who retired in the pandemic would consider returning to work. Many found their savings weren’t going to withstand inflation. And others because, well, not working wasn’t as much fun as they imagined.
One of the first questions people considering retirement ask their financial advisors is what to do about Social Security. Pandemic disruptions, however, meant many people leaped based on bad judgments or friendly but ill-informed advice.
How do I know? Because I help financial advisors research Social Security filing options and help them recommend which will benefit their clients most. Here is information, from my experience, that is most useful to clients considering whether to “unretire.”
Best case: Clients left jobs but never filed for Social Security. The Social Security Administration’s offices closed abruptly in March 2020 and only reopened earlier this year. They moved to online and phone service, but some people may have either assumed they couldn’t file for benefits in the shutdown or hit roadblocks and didn’t persist.
Anyone who retired without filing is free and clear to take a job. My colleague Paul Samuelson would tell them they should.
Working for as long as possible will earn clients more credits toward their eventual Social Security benefit. It will also allow them to take advantage of employer-sponsored retirement plans or individual retirement accounts (IRAs) to save more money for retirement.
Second best-case: Clients had reached their Social Security full retirement age (FRA). Anyone whose work record qualifies them can file for Social Security at age 62, but they will take a significant hit to their total lifetime benefit. Waiting to the age Social Security calls “full retirement age” (FRA) will increase their monthly benefit.
And, once a person has reached their FRA, they can earn as much income as they like without penalty. Full retirement age varies by birth year. For example, anyone born in 1957 and turns 65 this year has a full retirement age of 66 and 6 months.
Before full retirement age, Social Security limits what clients can earn without losing some benefits. If clients are collecting Social Security and “unretire,” they could be affected by the earnings limit before they reach full retirement age.
In 2022, that limit is $19,560 for those under their FRA for the entire year. Earning above that limit, Social Security will deduct $1 from their benefit payments for every $2 they earn above the annual limit.
The rules change in the year they reach their FRA. Social Security deducts $1 in benefits for every $3 earned above a different limit. In 2022, that limit is $51,960, and it applies only to the months up to the month they reach their FRA.
Yes, the earnings limit applies to self-employment, too. It does not, however, apply to income from pensions or annuities, investment or interest income, veterans benefits, or government or military pensions.
Once clients reach their FRA, Social Security will recalculate their monthly benefit to restore the benefits deducted over the months or years they exceeded the earnings limit. That means they’ll get a lift when they “re-retire.”
Other options: stop or suspend benefits. If clients have started collecting Social Security, they may be able to stop or suspend their benefits.
Clients can stop Social Security benefits if they are under full retirement age. They must:
• Do this within 12 months by filing a Request for Withdrawal of Application through an SSA representative (they can’t do this online).
• Re-pay all benefits they received and any paid to someone (such as a spouse) receiving a benefit on their record.
• Re-pay Medicare premiums if those were deducted from clients’ Social Security checks.
Clients over their FRA can suspend Social Security benefits by contacting the SSA and making the request. They don’t have to repay any benefits. Plus, they’ll be able to earn delayed retirement credits (DRCs) of 8% every 12 months while their benefits are suspended. Those DRCs will accrue their benefits when they resume collecting.
Be sure to ask clients considering suspending benefits if anyone is receiving a benefit tied to their record. Those payments will be suspended, too, without earning DRCs.
Clients with Medicare premiums deducted from their Social Security payments will need to repay those themselves.
Help Your Clients Do A Cost vs. Benefit Analysis
Inflation is affecting daily living expenses hard: food, gasoline, electricity, heating fuel and rent prices are all higher than they were a year ago. And clients’ investment portfolios are taking some hits. Unretiring may be a smart move.
Besides the advantages I have mentioned, returning to work may provide some clients benefits—like health insurance, paid vacation and tax-advantaged savings plans—if they work enough hours. And it may mean more assets that they place with you to manage.
Alyson Dorosky, CSSCS, is head of Social Security support at LifeYield. She works with advisors and their clients to address their thorniest Social Security issues.