But you don’t “lose” money to the earnings test until death does you part. Your benefits will be recalculated at your full retirement age and increased to make up for the months when your benefits were withheld because of the earnings test. However, those dollars are worth less because of inflation and one may not know if the test becomes more stringent in future tax law. If a stealth bomb lands in a forest, it will make a sound so anyone that pursues a strategy of make it today and make it up tomorrow should be aware that the earnings test can be changed for better or worse. In addition, according to MasterPlan Advisor, Brian Adams, “if a client dies, then the lost earnings are gone as well”
Now for solutions:
- Since the test is done on gross earnings and pretax contributions to a 401(k) or IRA won’t help, defer as much in earnings toward the end of the year to 2018. Many employers will allow this strategy.
- Avoid any investments or savings vehicles where a portion of tax-advantaged income will be taxed such as private- purpose municipal bonds used to build stadiums and airports. If income is needed now, consider an annuity with an income rider which will protect principal as well and provide a lifetime income.
- Establish a deferred compensation plan if self-employed or employed by a small business owner rewarded or incentivized by additional income in the future. A life policy or annuity is ideal for the purpose of tax deferral as well.
According to the Insured Retirement Institute Study “Boomers 2016”, Baby Boomers are now more concerned with changes in Social Security rather than outliving income. We are seeing Social Security concerns in Metro Atlanta too. Those fears have been compounded by the change in administration even with the President Trump’s assurances not to tamper with Social Security. A recent obituary read that a farmer had a heart attack while helping a cow in labor. The paper said that the “man died while giving birth to a calf” Let’s hope that a zealous need for revenue does not give birth to a reduced incentive to work in 2017.
Advisory services offered through MasterPlan Retirement Consultants, Inc. Insurance services offered through Fricks and Associates, Inc. Tax services offered through MasterPlan Tax Services, Inc. The aforementioned are affiliated companies. MasterPlan Retirement Consultants is not affiliated with or endorsed by the Social Security Administration or any government agency.