Question: I work at a part-time job that pays $1,000 a month, and I draw Social Security. I am 63 years old. My employer wants to make my job full-time, at $2,000 a month. Should I take it, or will I lose too much of my Social Security? I'll receive health benefits if I go full-time.
Answer: You will lose a big chunk of your Social Security benefits, but it may still be worthwhile to take the full-time job. Health insurance is a valuable perk, and you should recover the lost Social Security benefits through higher payments later on when you really retire.
Anyone who starts receiving Social Security benefits before full retirement age loses $1 in benefits for every $2 of earnings above the $11,520 limit in 2003. This is the notorious "earnings test." For example, a person who makes $24,000 this year will lose $6,240 worth of benefits. The threshold will be slightly higher in 2004.
But the health insurance may be a lot more valuable.
"If he had to buy insurance on his own, I'm sure that would cost at least $6,240 a year at his age, assuming he could get it," says Phillip Cook, a certified financial planner in Torrance, Calif.
A person is lucky to have the option, says Mari Adam, a certified financial planner in Boca Raton, Fla. "If someone said to me, 'You can work and I can pay you and you can get health benefits,' I'd grab it."
Also, you should recognize that Social Security benefits lost to the earnings test aren't necessarily lost forever. When you claim benefits before full retirement age, benefits are reduced to account for the fact that you'll be receiving them for a longer period. Someone born in 1940 — whose full retirement age is 65 and six months — loses 0.535 percent of benefits for every month checks are received before full retirement age.
But if you lose, say, four months' worth of benefits to the earnings test, those months don't count against you when figuring your benefit amount. So the cut in lifetime benefits would be smaller. Higher benefits later should make up for the money lost to the earnings test, assuming you live at least as long as your life expectancy.