Working Beyond the Full Retirement Age (FRA)

Working Beyond the Full Retirement Age (FRA)

[caption id="attachment_433" align="alignleft" width="150"]Robert K. O’Dell, CFP Robert K. O’Dell, CFP[/caption]

It is not uncommon for baby boomers a few years before their Full Retirement Age to downshift their career to pursue activities they have always dreamt of considering.

This is known as employment “restylement” (not retirement), which will often mean less earned income while pursuing their avocation. A common question is, what impact will this income reduction for the years immediately before retirement have on their monthly Social Security Benefit? This restylement will only negatively impact benefits if the lesser amount of earned income is within the highest 35 years of employment income.

Determining one’s Social Security Benefits is a complicated calculation impacted by a number of factors. The benefits are calculated on the worker’s highest 35 years of earnings, not the last 35 years prior to retirement. For workers who have 20 years of earnings at the maximum rate, the remaining 15 years will come from the years in which they earned the next highest amount.

For married individuals in which one spouse wants to continue to work beyond their FRA, there’s a strategy known as “Claim and Suspend” that might be beneficial to them. If the married couple is of comparable age, the working spouse can claim Social Security Benefits at FRA and then immediately suspend payments in order to allow his/her spouse to claim a spousal benefit. The spousal benefit will be 50% of the working spouse’s benefit.

The working spouse’s benefit will continue to receive delayed benefit credits while in suspension at 7 - 8 percent annual increase. This strategy was authorized by the Senior Citizens’ Freedom to Work Act of 2000. It is a strategy to consider for those who want to work beyond their FRA and have the capacity to subsidize their needs from other sources.

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