I Took Social Security While I Was Still Working — Even Though the IRS Takes a Cut

I’m one of that subset of American taxpayers who’ve reached full retirement age (FRA) of 67 and then chose that point to begin drawing Social Security. I’ve also kept working and am paying the price in the form of paying taxes on a portion of my benefits. I knew that going in.

Death and taxes of course are unavoidable, and the relatively low threshold for paying federal income taxes on Social Security while I continue my work as an independent contractor (after retiring from my full-time job in 2021) didn’t deter me.

I like what I do, and this move provides a balance between enjoying the benefits of retirement while enhancing my financial stability.

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Calculating decisions around taxes and lifespan

Here are the first two basic calculations that went into my thinking about when to start drawing my entitlement: Social Security on average replaces about 40% of your working pay, according to the Social Security Administration (SSA). Meanwhile, the average lifespan for an American man who lives to age 60 is 80.47 years and for a 60-year-old woman is 83.67 years, according to the SSA.

The third is this: The IRS will ding you for taxes on up to 50% of your benefits if your combined income — from Social Security and your pay and investment income — is between $25,000 and $34,000 if you’re a single filer or $32,000 and $44,000 if you file jointly. Above those thresholds, up to 85% of benefits can be taxed.

I’ve been paying taxes my whole adult life. Why stop now?

Now, if you can live on Social Security benefits and other income that totals less than $25,000, you don’t owe anything on those benefits. That wouldn’t work for me, even though I live a pretty modest lifestyle and don’t want to draw down my savings to maintain it any more than I have to.

To be sure, I didn’t go that deep into the weeds with calculators and income predictions for 2024 and beyond to know what I’d owe with any real precision, but I knew I’d still be ahead.

Income after taxes, after all, is still income. They don’t take it all. I’m used to paying taxes. Been doing it all my working life, receiving both W-2 and 1099 forms each year all along the way. I just make sure to keep abreast with my quarterly estimates. I learned that the hard way years ago when I first started freelancing.

You can go your own way, but know the way before you go

Navigating Social Security benefits and taxes can be a nuanced interplay between the individual and the IRS. Everyone’s situation is different and drives the decisions you ultimately make. Consulting with a qualified tax attorney and/or financial advisor is highly advisable. You want to understand what you’re doing before and after you start doing it.

My approach involves working in retirement and claiming Social Security at what might seem early to some, and too late to others, my bottom line is that I don’t mind sharing my retirement revenue with the IRS.

Volunteers at a clothing drive.

Image source: Getty Images.

Taxes are just part of the plan for giving back

I’m fortunate that life has brought me to the point where I can continue to work part-time and ramp up my availability for volunteer work and capacity to continue donating modestly to causes that matter to me. My payback here is a sense of purpose and connection.

Heck, the famous Harvard Study of Adult Development, now well into its 80s itself, shows that positive social relationships are more important than what you make and what you eat when it comes to living a long, happy life.

So my plans are to keep making hay while the sun shines, combining work I enjoy with other activities that I equally enjoy.

After all Social Security — and in my case, a small annuity — are guaranteed for life. Paying some taxes along the way is not such a big deal.

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