Age 70 SS receipient earning unlimited income w/no SSB taxed?

[AZ-Tax]

Its Mon and maybe I am just not thinking straight but my age 66 client called me and told me yet designed as a question, I was told at age 70, I can earn unlimited earned income and not have my SSB get taxed so he was thinking about holding off till Age 70 to start drawing SSB. False or am I missing something?

[Jiggers]

Its Mon and maybe I am just not thinking straight but my age 66 client called me and told me yet designed as a question, I was told at age 70, I can earn unlimited earned income and not have my SSB get taxed so he was thinking about holding off till Age 70 to start drawing SSB. False or am I missing something?

False. No such thing.

[JohnH]

There are plenty of excellent reasons for a savy retiree to delay drawing SSB until age 70. The main reason is a guaranteed annual 8% increase, which is unheard of these days. There is no risk associated with leaving the money on the table those 4 years (aside from the opportunity cost of not having the after-tax cash in hand and dying, which just means his heirs receive a little less. ). However, there is considerable "longevity risk" associated with taking the money before age 70, which can be offset by delaying until age 70.

So if he can afford to wait he would be wise to do so, but maybe not for the reasons he is thinking. Depending upon what he actually said to you, I can see how he may be operating on good advice but he has confused the tax issues with the SSB maximization issues.

Also, if he is married, there are some interesting ways to structure things, including what's referred to as the "free spousal benefit", which is the closest thing you'll ever find to a truly free lunch.

[WhiteOleander]

He's thinking about the law that you can earn as much as you choose and not have to pay any of the SS you drew for that year back. If you take early retirement, you have to pay part of what you drew back if you earn more than about 15,000 to 16,000(not sure of the exact amt) in a tax year. But that has no bearing on whether it is taxable for income tax. My clients get this confused all the time.

[kathyc2]

Its Mon and maybe I am just not thinking straight but my age 66 client called me and told me yet designed as a question, I was told at age 70, I can earn unlimited earned income and not have my SSB get taxed so he was thinking about holding off till Age 70 to start drawing SSB. False or am I missing something?

Age 66 is the age where benefits are not reduced due to earned income.
Age 70 is the age where benefits no longer increase (except for COLA) for delaying benefits.

Taxability is determined by all income and has nothing to do with age.

[FEDUKE404]

Full Retirement Age governs limitations on employee earnings

Age 66 is the age where benefits are not reduced due to earned income.
Age 70 is the age where benefits no longer increase (except for COLA) for delaying benefits.

Taxability is determined by all income and has nothing to do with age.

Small technical correction:

The age at which your earnings will not (negatively) impact your Soc Sec payments is not necessarily age 66 but rather "full retirement age" based upon your year of birth, per the chart below. (FRA is the same age at which you can otherwise receive "100%" of your benefits.)

http://www.ssa.gov/planners/retire/agereduction.html

For the old-timers, it is age 65. For the younger (WHAT Social Security? ? ) it is age 67. Current retirees are at the age 66 threshold for FRA. (There are also several graduated "steps" between age 66 and age 67 folks.)

This is a separate matter from getting (permanently!) reduced benefits if you start collecting Social Security at age 62 (or anywhere in-between then and your full retirement age), or the cashing in of those 8%/year chips by waiting until age 70 to start collecting anything. While waiting until age 70 to start collecting may sound intriguing, many people who do so might not be around long enough to reach the "break even" point.

And, often forgotten, those nasty little RMDs can, upon arrival, bump your income (and taxes) up very quickly.

FE

[JohnH]

I'm less concerned about breaking even and more concerned about breaking through.
If I die earlier than the actuaries expect me to, then I won't be around to regret it.
(Maybe my heirs will be crying over a little spilled milk, but that would only prove I didn't do a very good job of educating them on good financial practice before I died).

My concern leans more in the direction of breaking through the statistical probabilities, outliving all my assets, and regretting not having taken advantage of a very good financial deal when I could afford to do so.
Longevity risk - that's the real problem.

[kathyc2]

Small technical correction:

For the old-timers, it is age 65. For the younger (WHAT Social Security? ? ) it is age 67. Current retirees are at the age 66 threshold for FRA. (There are also several graduated "steps" between age 66 and age 67 folks.)

FE

True. Also, the increase in benefits for delayed retirement is calculated on a monthly basis rather than a bump on birth month. And there is a different earning test for reduced benefits in the calendar year in which one reached FRA. Congress has made the rules so complex that the average taxpayer doesn't understand how to maximize benefits.

[FEDUKE404]

When to take Social Security benefits

True. Also, the increase in benefits for delayed retirement is calculated on a monthly basis rather than a bump on birth month. And there is a different earning test for reduced benefits in the calendar year in which one reached FRA. Congress has made the rules so complex that the average taxpayer doesn't understand how to maximize benefits.

Agreed once again. The "rules" for the calendar year in which one attains FRA can be quite overwhelming.

Unfortunately, there are MANY ways a Soc Sec recipient can manage the initial receipt of that income. Financial well-being and overall health can be strong considerations as to which path to take.

The prevailing "in most cases" conclusion is not to take early (before FRA) benefits unless there are compelling reasons to do so. How far out on the other side (see JohnH post) is a separate personal decision. While living to a ripe old age is, indeed, a suitable goal I've known way too many people who did not have that luxury. I personally see waiting until age 70 to collect benefits as a somewhat risky roll of the dice.

FWIW, it's been my observation that the vast majority of the people I know (clients/non-clients) have chosen to get benefits as early as possible, namely at age 62 (unless disabled). Some need the money. . .understood. Others cite that Soc Sec might not be around too much longer. . .a bit of a stretch.

Oh well. Thanks for the input.

FE

[JohnH]

You make an interesting point about those who claim SocSec benefits at the earliest opportunity. Obviously, those who are in bad health and have valid medical reasons to expect they likely won't live to their normal life expectancy should do this. But it has surprised me over the years to see people who were perfectly capable of waiting (at least until FRA), who jump on the bandwagon. The idea that "the money may not be there" is downright silly, IMO. Then they double down by trying to limit their earnings each year so as not to exceed the arbitrary earnings limit. IMO, it's simply short-sighted financial planning, especially since waiting gives a guaranteed 8% return on the investment.