Mailbag: Social Security Rules, ESG Investing, and REIT Pitfalls

Ron Stutz (0:01)

Here's what's coming up on this edition of The Retirement Huddle with Mark Howard and your host Ron Stutz.

Mark Howard (0:07)

Don't let Social Security earnings and the limits on that make decisions for you. Let's run the numbers first, and you may discover that going back to work for a few months doesn't hurt you nearly as much as you thought.

Ron Stutz (0:19)

It's time for The Retirement Huddle with your local financial coach, Mark Howard. If retirement is a game, you're in it to win it. The huddle is where your financial battle plans are drawn, and Mark Howard is here to help with the X's and O's. So, let's kick it off and break the huddle. The Retirement Huddle starts now.

Ron Stutz (0:47)

Coach, a lot of people say their favorite part of the show is when you answer questions from some of our listeners, and we do indeed have some good questions today. The first one is from Paul in Statesboro.

And Paul says, I know that I have to keep my income under a certain threshold to keep my Social Security from being penalized. I had the opportunity for some seasonal work, but the rest of the year, I plan to be fully retired. How much would that seasonal work hurt me?

Mark Howard (1:16)

Oh, good question, Paul. We get this every so often, for sure. And if you're thinking about taking seasonal work, don't automatically turn down the job because you're afraid Social Security is going to penalize you. I think the rules are more forgiving than most people think.

So for example, this year, if you're under full retirement age for the entire year, and full retirement age is based on your age, when you were born, for most folks born after 1960, full retirement age in Social Security's eyes is age 67 You can earn up to $24,480 in wages without having any of your Social Security benefits withheld. Now, generally, they withhold $1 of benefits for every $2 you earn above the limit. So let's suppose you take that seasonal job and you earn $34,480.

So you're $10,000 over the limit. Social Security withhold $5,000 of your benefits for the year. Now, somebody usually says, well, why would I work for $10,000 if Social Security is going to take $5,000? Because you still earn the $10,000, right? I mean, we don't normally turn down the dollar because we're only allowed to keep a part of it. But here's the wrinkles. First, once you reach full retirement age, the earnings test disappears.

You can make as much as you want. Social Security doesn't withhold a thing. Second, we're talking about earned income. Not all income is considered earned income. So, wages, self-employment, income counts, your IRA withdrawals, pensions, annuity income, dividends, interest and investment income normally do not count toward that particular Social Security earnings test. So, that's an important distinction because I think a lot of people start rearranging their entire portfolio based on trying to stay below a limit.

But then third, and this one is really more to seasonal work, there's a special monthly rule that can sometimes help during the first year of retirement. And it's a little tricky to get into on the radio, but it's something that I don't really call a penalty. You know, before you tell your seasonal employer, sorry, Uncle Sam's not going to let me earn this much money, let's run the numbers. And the first thing we got to know is your age, when you started Social Security, what your monthly Social Security benefit is, how much the seasonal job would pay you over the course of the year, and then we can calculate what might be withheld. But here's the thing about it, is that the takeaway from all of this is, you end up getting that money back. Once you've reached full retirement age, you're going to get that money back, they're going to recalculate your Social Security payment, and if they've withheld $10,000 from you, you're going to get all of that back. So, yeah, I hate to see you sitting at home watching daytime television, just to avoid earning too much money. You don't want to approach it from that at all. So, the takeaway, don't let Social Security earnings and the limits on that make decisions for you. Let's run the numbers first, and you may discover that going back to work for a few months doesn't hurt you nearly as much as you thought.

Ron Stutz (4:31)

Okay, run those numbers, get more specific advice, and achieve the three Cs, confidence, clarity, and what's the other one? Uncertainty, there you go. And that will result in a lot of peace of mind for you. So, thanks for the question, Paul. And let's go to Okiti for the next question. It's from Susan. And Susan says, I like the concept of ESG investing.