As we age, many of us look forward to the day when we can retire and live out the rest of our lives in peace. However, retirement does not always mean the end of our working life.
Many Americans choose to continue working after retirement, while some need to continue earning money due to various financial reasons. In this article, we will discuss two important topics related to retirement – taxes on Social Security benefits and how to find work after retirement.
Taxes on Social Security Benefits
When we receive Social Security benefits, we might not consider the impact of taxes on our income. However, the reality is that our Social Security benefits may be taxable, depending on our income level.
Here are some essential things you should know about taxes on Social Security benefits:
When is Social Security nontaxable? If your combined income (which is your adjusted gross income plus your nontaxable interest and one-half of your Social Security benefits) falls below a certain threshold, your Social Security benefits will not be taxed.
For 2021, the threshold is:
– $25,000 for those filing as individuals, heads of household, or married people filing separately who did not live with their spouse during the year. – $32,000 for married couples filing jointly.
– $0 for married couples filing separately who lived together during the year. When is Social Security 50% taxable?
If your combined income is between $25,000 and $34,000 (for individuals) or $32,000 and $44,000 (for married couples filing jointly), you may have to pay taxes on up to 50% of your Social Security benefits. This is commonly known as the “50% tax.”
When is Social Security 85% taxable?
If your combined income is above $34,000 for individuals or $44,000 for married couples filing jointly, then you may have to pay taxes on up to 85% of your Social Security benefits. This is the maximum amount that can be taxed.
Is spousal income included? If you are married and filing jointly, your combined income calculation includes your spouse’s income as well.
This means that your spouse’s income can potentially push your combined income over the threshold, causing you to pay taxes on your Social Security benefits.
Ways to avoid Social Security taxation while still earning money
If you are earning money outside of your Social Security benefits, there are a few ways to reduce your combined income and avoid taxation. Some ideas include:
– Work small side gigs that do not generate too much income.
– Consider reducing your outside income to stay within the taxable income limits. – Invest nontaxable income, such as municipal bond income.
– Take advantage of tax deductions and credits.
Retirees Finding Work After Retirement
Retirement is a time when many of us look forward to relaxing and enjoying life without thinking about work. However, some retirees need to continue working to maintain their standard of living.
Additionally, others may want to continue working to stay active and engaged. Here are some important things to consider when looking for work after retirement:
Most Americans don’t want to work after retirement
According to a Gallup poll, 53% of American workers said they plan to retire at age 65 or older, and 23% said they will never retire.
However, the reality is that 62% of workers over age 50 eventually retire sooner than planned. While some may retire early due to personal reasons, others may need to retire due to financial reasons.
Why some retirees need to work after retirement
Many retirees find that their retirement nest egg may not be enough to sustain their lifestyle. For others, Social Security benefits may not be enough to cover all their expenses.
Thus, taking on a side gig after retirement can be a good way to bridge the financial gap. What types of side gigs could you work?
Here are some side gigs that can be done after retirement:
– Craft or tradesperson (ex. woodworking, knitting, jewelry making).
– Reseller (selling items on online marketplaces like eBay). – Virtual assistant (ex.
administrative, customer service). – Ride-share driver (ex.
Uber, Lyft). – Online tutor (ex.
teaching new skills to others). – Community college lecturer (teaching college topics with less obligations than full professors).
– Bookkeeper (ex. helping small businesses keep their records straight).
– Consultant (ex. offering advice based on expertise).
– House or pet sitter (staying in homes for a set amount of time and taking care of pets).
Benefits of having a hobby-like side gig in retirement
Besides the financial benefits, having a hobby-like side gig in retirement can be enjoyable and provide a sense of purpose. It can also provide social interaction and reduce the risk of cognitive decline.
Additionally, some side gigs can be done at home without leaving the comfort of your own space.
Conclusion
In conclusion, retiring from work does not necessarily mean the end of your working life. If you are receiving Social Security benefits, ensure to understand the taxation rules and how much you might have to pay.
Finding work after retirement can also be beneficial both financially and emotionally. Consider taking on a side gig that can bring you joy while also contributing to your financial goals after retiring from your main job.
In summary, this article highlights two important topics related to retirement: taxes on Social Security benefits and finding work after retirement. Social Security benefits may be taxable, depending on your income level, and ways to avoid taxation include taking small side gigs or investing nontaxable income.
While retiring is an option for most Americans, many retirees need to continue earning money due to financial reasons. Side gigs like being a virtual assistant, tutor, or reseller can be both financially beneficial and emotionally rewarding.
The main takeaway from the article is that it is important to plan for retirement early and have a diversified financial plan to ensure a comfortable and enjoyable retirement.