I'm 71 and still working. I earn $108,000 a year. Am I doing the right thing?

By Quentin Fottrell

'I have $152,000 in my IRA and Roth accounts'

"I keep seeing ads for annuities that would pay roughly $800 to $900 a month for a $100,000 investment." (Photo subject is a model.)

Dear Quentin,

I'm still working at 71, collecting almost $40,000 a year in Social Security benefits. I am downsizing our home and will not have a mortgage. Between my employer and I, about $1,000 a month is going into my 401(k). Right now, I have $152,000 in my IRA and Roth accounts.

I intend to keep working as long as I can function, earning $108,000 a year. With our downsizing, we will have a lot of expenses coming up (moving, appliances, TVs, etc.), which will deplete a huge portion of our emergency fund. We have no credit-card debt.

I keep seeing ads for annuities that would pay roughly $800 to $900 a month for a $100,000 investment and wanted to know if that is a good idea. Or perhaps I just keep doing what I'm doing. I'm undecided. Most of my retirement money is in several funds with T. Rowe Price.

Am I doing the right thing by still working?

Will my Social Security be taxed?

Working

Related: After 46 years working, I'm not retiring - instead, I take a vacation every month. Is that a good life in your 70s?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

You are beyond full retirement age (FRA), so your Social Security checks will not be reduced while you are still working.

Dear Working,

You've hit the sweet spot. You are beyond full retirement age (FRA), so your Social Security checks will not be reduced while you are still working. You don't say when you started collecting Social Security. You may have waited until you turned 70 for those extra 8% annual bumps beyond FRA, or you may not.

That said, you will have to pay tax. For single filers, heads of household or qualifying surviving spouses, benefits are generally not taxable if combined income is under $25,000 a year. Between $25,000 and $34,000, up to 50% of your benefits may be taxable, and if you earn more than $34,000, up to 85% of your Social Security may be taxable.

For married couples filing jointly, Social Security benefits generally aren't taxable if combined income is under $32,000. Between $32,000 and $44,000, up to 50% of your benefits may be taxable, and above $44,000, up to 85% may be taxable. Contact the IRS's benefits guidance and use Box 5 of your SSA-1099 when preparing your tax return.

You may feel as though you're being taxed twice, given that you're already paying 6.2% of your wages in Social Security taxes, while your employer contributes another 6.2%. But the tax on Social Security benefits is a separate federal income tax, it is not an additional Social Security tax. You continue to pay it for the collective good.

Up to 50% or as much as 85% of your Social Security may be subject to federal income tax.

For what it's worth, the Internal Revenue Service calculates tax due on your Social Security based on your "combined income," which consists of your adjusted gross income, tax-exempt interest, and half of your annual Social Security benefits. Up to 50% or as much as 85% of your Social Security benefits may be subject to federal income tax.

If you are married filing jointly, earn $108,000 from work, receive $40,000 in Social Security and have only a small amount of additional retirement income, you would have 85% of your Social Security benefits subject to federal income tax. That means $34,000 of that $40,000 Social Security benefit would be part of your taxable income.

That $34,000 gets added to your other taxable income and taxed at your applicable federal income-tax rates. In this case, your income before deductions would be roughly $142,000 - your $108,000 salary plus your $34,000 of taxable Social Security - before adding any taxable pension or IRA income. Your age is not a factor.

Increasing your income-tax withholding can help you avoid a large tax bill and possible underpayment penalties, although it won't change the total amount of tax you ultimately pay. You may decide to have 7%, 10%, 12% or 22% of your benefits applied to your next tax bill, AARP says, and you can adjust your withholding later if you like.

If you have money in a 401(k) or IRA, they have the potential to grow and help offset inflation.

You have relatively modest retirement savings, which I hope are at least keeping pace with the S&P 500. You say your emergency fund will be depleted by your move, but I hope that you will gain some hard cash when you sell your home and downsize. That's one pretty big move in any 12-month period. I don't see why you should make any other sudden moves right away.

You could talk to a fee-only financial adviser, but here's my take: Annuities can come with very high fees, and you already have an income (your job). You are lucky and/or willing to keep working, and ensure that you top up your retirement fund, and keep yourself in the lifestyle - however grand or modest - to which you have become accustomed.

Annuities provide a guaranteed income, similar to Social Security, and you already have the latter. Depending on the type, income may depend on your initial investment, the interest rate or other terms you lock in and, of course, the payment schedule. Payouts can also depend on your age, gender and whether the product is a joint-and-survivor annuity.

If you expect to live a long time, a lifetime annuity can provide valuable protection against outliving your assets. But if you put a chunk of your investable wealth into a lifetime annuity, you have less access to that cash. You are giving up the potential for stock-market gains on that money in exchange for protection against outliving your assets.

You have 50 years of experience and knowledge. All too often, older workers are overlooked.

An annuity is neither a bond nor cash. Like Social Security, it is effectively an insurance contract: You pay an insurance company in exchange for a stream of income. An immediate annuity begins making payments shortly after you purchase it, typically within a year, whereas a deferred annuity begins payments at a later date.

If you have money in a 401(k) or IRA that is invested in stocks, those investments can grow over time and help offset inflation. Annuity income is typically fixed and, as such, can lose purchasing power as prices rise - unless you purchase an inflation adjustment or rider. That additional protection comes at the cost of a lower initial payout.

Are you doing the right thing by working into your 70s? If you enjoy your job, you're healthy enough to keep doing it and you don't need to retire for financial or personal reasons, there is no obvious reason to stop simply because you've reached 71. You have 50 years in the workplace. You have a wealth of knowledge and experience.

Don't get sidetracked by products that you don't fully understand. By all means, seek professional advice, but your main priority now is to ensure you have a good income in retirement. You don't have to make every retirement decision at once. Keep earning, keep building up your retirement fund and cash reserves for your own peace of mind.

And good luck with the move.

By emailing your questions to The Moneyist or posting your dilemmas on The Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.

More columns from Quentin Fottrell:

'I still don't have my MRI': My health insurer canceled my plan without warning. Is that legal?

'Please don't let this happen to you': My best friend died without a will - her neglectful family gets everything

'He does not have a spouse or children': My son has a serious genetic disease. What should I do with my $1.3 million estate?

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-Quentin Fottrell

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10-02-26 0900ET

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