How Much Income Can a Retired Person Make? And Other Retirement Questions

Retirement planning is stressful enough without having to worry about all the rules and regulations regarding benefits and income. Our goal is to help you understand these limits and tax implications better so that you can make the most of your retirement.

We have to add a small disclaimer that this blog is for informational purposes only and not intended to provide any financial or tax advice. It's always best to work with a licensed financial advisor or tax professional for your specific situation, but we hope you still take away value from it!

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How Much Can a Retired Person Earn without Paying Taxes?

If your only income comes from benefit payments, you won't have to pay federal income taxes on those benefits. However, if you have other sources of income, here's what you need to know (based on previous years):

Filing Single

If you’re filing as a single person:

• You won’t pay taxes if your total income, including half of your Social Security benefits, is less than $25,000.
• If your earned income is between $25,000 and $34,000, you might pay taxes on up to 50% of your Social Security benefits.
• If your income is over $34,000, up to 85% of your benefits might be taxable.

Married Filing Jointly

If you’re married and filing jointly:

• You won’t pay taxes if your total income, including half of your Social Security benefits, is less than $32,000.
• If your income is between $32,000 and $44,000, you might pay taxes on up to 50% of your Social Security benefits.
• If your income is over $44,000, up to 85% of your benefits might be taxable.

Married Filing Separately

If you’re married but filing separately and lived with your spouse at any time during the year, up to 85% of your Social Security benefits could be taxable regardless of your income.

Federal Income Tax Considerations

Now onto everyone's favorite topic...taxes (kidding).

Standard Deduction for Seniors

The IRS offers a larger standard deduction for individuals aged 65 or older.

If you're a single filer, your standard deduction increases by $1,650.

If you're married and filing jointly, each spouse’s standard deduction increases by $1,350.

For detailed information, refer to the IRS' Publication 554.

Taxable Social Security Benefits

Not all Social Security benefits are taxed.

The taxable amount of your Social Security benefit will depend on your provisional income, which includes wages, taxable and non-taxable interest, dividends, and half of your Social Security benefits.

Required Minimum Distributions (RMDs)

At age 72, you're required to start withdrawing required minimum distributions (RMDs) from traditional IRAs and other retirement accounts.

These withdrawals are taxable and included in your adjusted gross income (AGI).

The amount you need to withdraw is based on your account balance and life expectancy.

Failing to take the required distribution can result in a 50% tax penalty on the amount you didn't withdraw.

Social Security Income Rules

Are you still with us? We know this information isn't the most exciting, but here are some questions you might have.

If You Work, Will You Get Social Security Retirement Benefits?

Yes, you can receive Social Security retirement benefits while working!

However, if you are under your full retirement age, the amount you earn can reduce your benefits.

At What Age Can I Earn Unlimited Income While on Social Security?

Once you reach the normal retirement age, you can earn any amount without reducing your Social Security retirement benefit. Your benefits will no longer be withheld based on your earnings.

Earnings Test

Access the free Retirement Earnings Test Calculator from the Social Security Administration here!

Impact on Early Retirement

Taking Social Security benefits at age 62, the earliest possible age, results in reduced benefits.

However, once you reach full retirement age, the withheld benefits are recalculated, potentially increasing your monthly benefit amount.

What Is the Maximum Income After Retirement?

When you retire, the amount you can earn without impacting your Social Security benefits depends on your age and when you reach your full retirement age (FRA).

Earnings Limits

• Under Full Retirement Age (FRA): If you are younger than FRA for the entire year, the earnings cap is $22,320 in 2024. Social Security will withhold $1 for every $2 you earn over this limit.
• Year You Reach FRA: In the year you reach your FRA, Social Security will deduct $1 for every $3 you earn over $59,520 in 2024. This only applies to income earned before the month you reach FRA.
• After Reaching FRA: Once you reach your FRA, there are no earnings limits. You can earn any amount without affecting your Social Security benefits.

Additional Income Sources

Besides Social Security, your retirement income may include:

• Savings and Investment Income: Interest, dividends, and capital gains from your investments.
• Pensions: Regular payments from your former employer (i.e. military retirement benefits or railroad benefits).
• Retirement Account Withdrawals: Money taken from 401(k)s, IRAs, and other retirement accounts.
• Survivors Benefits: As a widow or widower.
• Part-time or Full-time Work: Earnings from continued employment or new job opportunities.

Retirement Account Withdrawals

There are also tax implications for withdrawing from your retirement accounts.

Here's a quick overview:

Traditional IRA and 401(k) Rules

• Taxable Withdrawals: Withdrawals from Traditional IRAs and 401(k)s are added to your taxable income and can affect which tax bracket you end up in.

Roth IRA Specifics

• Roth IRAs don't require you to take withdrawals during your lifetime. If you have a Roth account in a 401(k) or 403(b) plan, you need to take the required minimum distributions (RMDs) for 2022 and 2023. However, starting in 2024, you won't need to take RMDs from these Roth accounts anymore.

You might choose not to take withdrawals from your Roth IRAs for several reasons:

1. Tax-Free Growth: The money in a Roth IRA grows tax-free. The longer you leave the money in the account, the more it can grow without being taxed.
2. No RMDs: Unlike traditional IRAs, Roth IRAs don’t require you to take Required Minimum Distributions (RMDs) during your lifetime. This means you can let the money grow indefinitely without being forced to withdraw it.
3. Inheritance: Under certain conditions, Roth IRAs can be passed on to heirs without the requirement that they pay taxes on the withdrawals. This makes them a powerful tool for estate planning.
4. Flexibility: Not having to take withdrawals gives you the flexibility to decide when you want to use the funds, potentially for unforeseen expenses or later stages of retirement.

Gifts and Inheritance

Gifts and inheritance can also affect your retirement income:

2024 Gift Tax Rules:

• Annual Gift Exclusion: You can give up to $18,000 per person without tax or reporting requirements.
• Lifetime Gift Exemption: You have a $13.61 million lifetime exemption, covering all gifts and property left to heirs.

What Is the Best Side Hustle for Retirees?

If your benefits aren't going to cut it, these are some great side hustle ideas for retirees:

1. Self-Publishing on Amazon

• Why It's Great: Share your stories or knowledge and earn recurring royalties.
• Getting Started: Amazon Kindle Direct Publishing (KDP) is totally free!

2. Tutoring or Teaching

• Why It's Great: Share your expertise and help others learn.
• Getting Started: Offer services locally or online.

3. Freelance Writing

• Why It's Great: Use your writing skills to create all kinds of different content.
• Getting Started: Find gigs on Upwork or Fiverr.

4. Pet Sitting or Dog Walking

• Why It's Great: Stay active and spend time with animals.
• Getting Started: Advertise locally or join Rover.

5. Crafting or Selling Homemade Goods

• Why It's Great: Sell your handmade items online or at fairs.
• Getting Started: Use Etsy or Handmade at Amazon.

6. Consulting

• Why It's Great: Provide insights based on your experience.
• Getting Started: Network or advertise online.

Can You Retire Early by Self-Publishing on Amazon?

Yep! Self-publishing can lead to some pretty cool things, like funding an expensive sailing hobby, spending way more time with your kiddos, and...retiring in your 40s.

Just ask this couple:

Getting Started

Option A: Join thousands of AIA students taking full control over their income and schedules.

Option B: Visit the no-cost webinar that shows you exactly how a total beginner can go from someone with zero publishing or tech experience to a business owner making recurring income online. 

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