For retirees, one of the biggest transitions is living without a steady paycheck. For decades, you had a paycheck to help increase your wealth and finance current and future expenses. But without that steady income, managing your budget can be a challenge.

While you’re still working, you have more flexibility when balancing your needs and wants. That changes once you retire and are living on a fixed income. For retirees, income comes from either defined, fixed sources like Social Security benefits and pensions or retirement assets like your 401(k).

Managing Income and Assets

In many cases, retirees use their fixed income to pay for insurance, food and healthcare—things you need. Unfortunately, that reliable income often can’t cover the cost of all your needs. This means your retirement assets must act as a supplement to your reliable income. Reliable income and assets should meet your needs before paying for your wants—things like travel and charitable giving.

As a way of boosting reliable income, some retirees will continue to work part time. Not only does this increase the steady income needed to help finance your needs, but working also decreases your reliance on retirement assets. This can help preserve your assets when you are no longer able to work, or it can give you the freedom to use your assets to help pay for some of your wants.

Reaching Full Retirement Age

For Social Security recipients in your early- to mid-60s, you may not know that continuing to work may subject you to reduced Social Security benefits. A reduction in benefits is based on how much you earn and whether you have reached full retirement age (FRA), which is between 66 and 67, depending on the year you were born.

If you are under FRA, there is an earnings limit of $18,240 in 2020. If exceeded, $1 of Social Security benefits is withheld for every $2 you earn over the limit. The limit increases the year you hit FRA. For 2020, the earnings limit for the year you reach FRA is $48,600. If this limit is surpassed, $1 of benefits is withheld for every $3 in earnings over the limit.

An important point to note is that the limit of $48,600 only applies during the months before you attain FRA. For example, let’s say you get to full retirement age in August. The limit of $48,600 only applies to earnings made from January to July. From August onward, you no longer have an earnings limit, as Social Security benefits are not reduced based on earnings for individuals over FRA.

Social Security Benefits Reductions 


Planning Ahead

Working through retirement may provide you with more spending flexibility, but you will also want to consider how your income threshold impacts you. Consulting a financial advisor can help you determine if the additional income from a part-time job is worth the reduction in Social Security benefits. Planning ahead can better prepare you for the changes to both your reliable income and retirement assets.

Jim Sandager

Jim Sandager

Senior Vice President, Financial Advisor

CFP®, MBA, Series 7 Securities Registration,1 Series 66 Advisory Registration, † Life & Health Insurance License As a CERTIFIED FINANCIAL PLANNER™ professional, Jim brings an extensive retirement income planning background to the team. He regularly writes a personal finance column for The Des Moines Register’s Business...Read More