65 is the new 55 when it comes to retirement from your Lockheed Martin firm, meaning you may have the option to work at the same time you claim Social Security benefits. If you retire from Lockheed Martin and get a part-time job or some consulting income, your paycheck can affect the amount you receive monthly, the amount you owe in taxes for the year, and your Medicare premiums.
Reasons abound to keep working, but for most, it simply comes down to math and to emotions.
With a longer lifespan on average, many of our clients from Lockheed Martin are concerned they won't have enough savings to last their lifetime, and understandably so.
If you plan to keep working after retiring from your Lockheed Martin while collecting Social Security, here is what you need to keep in mind:
If you start your Social Security benefits before your (FRA), or full retirement age (which is between 66 and 67, depending on the year you were born), you will end up with a permanently reduced monthly benefit because of the early age. If you claim at the earliest possible age of 62, your monthly checks could be up to 30% less than at your full retirement age(FRA). 1
There will also be an earnings test until you reach that full retirement age(FRA): If you have earned income in excess of $19,560 in 2022, your benefits will be reduced by $1 for every $2 of earned income over the limit.
The year you reach your full retirement age(FRA), the earnings test limit is $51,960 in 2022, and your benefits will be reduced by $1 for every $3 of earned income over the limit.
These reduced benefits do not just 'disappear'. If your benefits have been reduced due to earnings, your monthly Social Security check will be increased after your full retirement age(FRA) to account for benefits withheld earlier due to excess earnings.
Note: Earned Income does not include investment income, pension payments, government retirement income, military pension payments, or similar types of 'unearned' income.
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'Earned Income' includes wages, net earnings from self-employment, bonuses, vacation pay, and commissions earned—because they're all based upon employment. Once you reach your full retirement age(FRA), there is no earnings test and no benefit reductions based on earned income.
Tax Impacts
Separate from the earnings test, Social Security benefits themselves are subject to federal income taxes above certain levels of 'combined income.' Combined income generally consists of your adjusted gross income (AGI), 2 nontaxable interest, and one-half of your Social Security benefits.
- For individual filers with combined income below $25,000, none of your Social Security is taxed. For joint filers with combined income below $32,000, none of your Social Security is taxed. (See: Income Taxes And Your Social Security Benefit for more information.)
- For individual filers with combined income of $25,000 to $34,000, 50% of your Social Security benefit may be subject to federal income taxes. If your combined income exceeds $34,000, then up to 85% of your Social Security benefits could be taxed.
- For joint filers with combined incomes of $32,000 to $44,000, 50% of your Social Security benefit may be subject to federal income taxes. If your combined income exceeds $44,000, then up to 85% of your Social Security benefits could be taxed.
Regardless of your income level, no more than 85% of your Social Security benefits will ever be subject to federal taxation.
Additionally, 11 states also tax your Social Security benefits. The rules and exemptions vary widely across this group so it is wise to research the rules for your state or consult with a tax professional if you're one of our Lockheed Martin clients that this applies. 3
State Social Security Tax
The eleven states below impose a tax on Social Security benefits to varying degrees.
Colorado
Colorado's pension-subtraction system exempts up to $24,000 in pension and annuity income, including some Social Security benefits. The exemption is based on your age, starting at age 55.
Connecticut
Connecticut partially or fully exempts Social Security benefits, based on a person's filing status and income.
Kansas
Kansas exempts Social Security benefits from state tax, based on the taxpayer's income. Your Social Security benefits are exempt from Kansas income tax if your federal adjusted gross income (AGI) is $75,000 or less, regardless of your filing status.
Minnesota
Minnesota partially taxes Social Security benefits. The state allows a subtraction from benefits ranging from $2,725 for married taxpayers who file separately, to $4,260 for single taxpayers, to $5,450 for married taxpayers who file jointly. The rule is subject to phaseouts starting at incomes of $82,770 for joint married filers, $41,385 for married taxpayers filing separately, and $64,670 for heads of household and single filers. The subtraction is less for these incomes and eventually phases out entirely as you earn more.
Missouri
Missouri exempts Social Security benefits from state tax, provided that the individual is age 62 or older and has adjusted gross income of less than $100,000 if married and filing jointly, or $85,000 for all other filing statuses. Those who earn more than that might qualify for the exemption if they're disabled.
Montana
Montana asks residents to use the Montana Individual Income Tax Return to determine the portion of Social Security benefits that's taxable by the state (page 5 and page 6). That might be different from the federal amount.
Nebraska
Starting in 2022, Nebraska began phasing out taxation of social security benefits. The state allows a deduction for Social Security income that's included in your federal adjusted gross income if your federal Adjusted Gross Income(AGI) is less than or equal to $61,760 for married couples filing jointly, or $45,790 for all other filers.
New Mexico
Starting in 2022, the state of New Mexico changed rules that would exempt most seniors from paying tax on social security benefits. This exemption is available to taxpayers with the following income thresholds — $100,000 for single filers, $150,000 for married filers filing jointly, and $75,000 for married filers filing separately.
Rhode Island
Rhode Island has an exemption on Social Security taxation for those who have reached full retirement age as defined by the IRS. Eligible taxpayers must have federal Adjusted Gross Income(AGI)s of $88,950 if single, or $111,200 if married and filing jointly.
Utah
In late 2019, Utah adopted a sweeping tax bill that includes a tax credit for Social Security benefits that are included in a taxpayer's federal adjusted gross income. The Adjusted Gross Income(AGI) thresholds are $25,000 for married filing separately, $50,000 for married filing jointly, and $30,000 for single filers.
Vermont
Vermont previously followed the federal rules for determining the taxable portion of Social Security benefits, and then it adopted exemptions for taxpayers with incomes below $25,000 for single filers and $32,000 for other statuses. Benefits for those with higher incomes are taxed at incremental levels, with no exemption available for Adjusted Gross Income(AGI) of over $55,000 if single or over $70,000 if you're married and file jointly.
Medicare & Social Security
In addition to federal and possibly state income taxes, you will pay Social Security and Medicare taxes on any wages earned in retirement. There is no age limit on these withholdings, nor any exemption for any sort of Social Security benefits status.
These earnings can also count toward the calculation of your benefits. The Social Security Administration checks your earnings record each year and will increase your benefit, if appropriate, based on these additional earnings.
If you are making much less in retirement than before, could it hurt your benefits?
No. This is because the benefit payment is still based on your 35 highest years of earnings. At worst, there would be no impact; at best, it could help if this replaces any of the lower 35 years.
Note: Your earnings may not only push you into a higher tax bracket, but also into a higher threshold for your Medicare premiums once you are over 65. Medicare sets the cost (premium) for Part B each year at a fixed rate for most participants ($170.10 a month for 2022), but it increases for individuals with an annual income over $91,000 and married couples with an annual income above $182,000. The cost for these higher-earning participants can range from $238.10 to $578.30 per month in 2022.
If your income is above a certain level, you may have to pay IRMAA (Income-Related Monthly Adjusted Amount) in addition to your Part B or Part D premium. We recommend you consult with a tax professional for more details on whether or not you are affected.
Can I Contribute to a Retirement Account?
Another key advantage of ongoing earned income even after you collect Social Security is that you can keep contributing to your retirement savings accounts like traditional IRAs, health savings accounts (HSAs), Roth IRAs, and 401(k)s.
Note: If you are over 72, you will have to take the required minimum distribution (RMD) from your traditional IRA, except for during the 2020 pause because of COVID-19.
Your traditional 401(k), or similar Lockheed Martin retirement plan, is a different story. In general, you can continue stashing away money in your current Lockheed Martin-provided plan as long as you're still working, even part-time, and you can delay taking your RMD until after you retire.
These additional savings can help, especially if your savings are running a bit behind your goals. The combination of the added savings, tax-deferred growth potential, and the ability to defer tapping into your savings can be powerful, even at the end of your working career.
How does Lockheed Martin determine the monthly pension benefit for employees nearing retirement, and what factors should employees consider when planning their retirement based on this calculation? Specifically, how do the concepts of "Final Average Pay" and "Credited Years of Service" interact in the pension calculation under Lockheed Martin’s retirement plan?
Lockheed Martin Pension Calculation: Lockheed Martin calculates monthly pension benefits using the "Final Average Pay" (FAP) and "Credited Years of Service" (CYS). The FAP is determined by averaging the three highest annual compensations prior to 2016, while CYS counts the years from employment start to December 31, 2019, when the pension was frozen. The benefit per year of service is calculated based on whether the FAP is less than or exceeds the Social Security Covered Compensation, with specific formulas applied for each scenario. These calculations directly affect the monthly pension benefit, which may also be reduced if retirement commences before a certain age due to early retirement penalties.
Given the recent changes in Lockheed Martin's pension policy, what implications could this have for employees who are planning to retire in the near future? How should these employees navigate their expectations regarding retirement income given that the pension has been frozen since 2020?
Implications of Pension Freeze: Since Lockheed Martin froze its pension plan in 2020, no future earnings or years of service will increase pension benefits. This freeze shifts the emphasis towards maximizing contributions to 401(k) plans, where Lockheed Martin increased its maximum contribution to 10% for non-represented employees. Employees planning for imminent retirement should recalibrate their financial planning to account for this change, prioritizing 401(k) growth and other retirement savings vehicles to compensate for the pension freeze.
What options does Lockheed Martin provide for employees regarding healthcare insurance as they approach retirement age? How do these options compare in terms of coverage and cost, particularly for those who will transition to Medicare upon reaching age 65?
Healthcare Options Near Retirement: As Lockheed Martin employees approach retirement, they can choose from several health insurance options. Before Medicare eligibility, they may use COBRA, a Lockheed Martin retiree plan, or the ACA's private marketplace. Post-65, they transition to Medicare, with the possibility of additional coverage through Medicare Advantage or Medigap plans. Lockheed Martin supports this transition with a Health Reimbursement Arrangement, providing an annual credit to help cover medical expenses.
Understanding the complex nature of Lockheed Martin's pension and retirement benefits, what resources are available to employees to help them navigate their choices regarding pension claiming options? In what ways can the insights from these resources aid employees in making informed decisions about their financial future?
Resources for Navigating Retirement Benefits: Lockheed Martin employees have access to resources like the LM Employee Service Center intranet, which includes robust tools such as a pension estimator. This tool allows for modeling different retirement scenarios and understanding the impacts of various pension claiming options. Additional support is provided through HR consultations and detailed plan descriptions to ensure employees make informed decisions about their retirement strategies.
For employees with varying years of service at Lockheed Martin, how can their employment history impact their pension benefits? What strategies should individuals explore to maximize their benefits given the different legacy systems that might influence their retirement payout?
Impact of Employment History on Pension Benefits: The length and nature of an employee’s service at Lockheed Martin significantly influence pension calculations. Historical changes in pension policies, particularly the transition points of the pension freeze, play critical roles in determining the final pension benefits. Employees must consider their entire career timeline, including any represented or non-represented periods, to understand and maximize their eligible pension benefits fully.
How does the Lockheed Martin retirement plan ensure that benefits are preserved for spouses or dependents after an employee's passing? How do different claiming options affect the long-term financial security of the employee's family post-retirement?
Benefit Preservation for Dependents: Lockheed Martin's pension plan includes options that consider the welfare of spouses or dependents after an employee's passing. Options like "Joint and Survivor" ensure ongoing benefits for surviving spouses, while choices like "Life with X-Year guarantee" provide continued payments for a defined period after the employee’s death. Understanding these options helps secure long-term financial stability for beneficiaries.
What steps can Lockheed Martin employees take to prepare financially for retirement, especially if they have outstanding loans or financial obligations? How crucial is it for employees to understand the conditions under which these loans must be settled before retirement?
Financial Preparation for Retirement: Employees approaching retirement should focus on clearing any outstanding loans and maximizing their contributions to tax-advantaged accounts like 401(k)s and Health Savings Accounts (HSAs). These steps are crucial for ensuring a smooth financial transition to retirement, minimizing potential tax impacts, and maximizing available retirement income streams.
With the evolution of Lockheed Martin's retirement initiatives, particularly the shift toward higher 401(k) contributions, how should employees balance contributions to their 401(k) with their overall retirement savings strategy? What factors should they consider in optimizing their investment choices post-retirement?
Balancing 401(k) Contributions: With the pension freeze, Lockheed Martin employees should increasingly rely on 401(k) plans, where the company has increased its contribution cap. Employees must balance these contributions with other savings strategies and consider their investment choices carefully to ensure a robust retirement fund that can support their post-retirement life.
How does Lockheed Martin's approach to retirement planning include the management of health savings accounts (HSAs) for retirees? What are the tax advantages of HSAs, and how can employees effectively utilize this resource when planning for healthcare expenses in retirement?
Management of HSAs for Retirees: Lockheed Martin encourages maximizing contributions to Health Savings Accounts (HSAs), which offer significant tax advantages. These accounts not only provide funds for current medical expenses but can also be used tax-free for healthcare costs in retirement, making them a critical component of retirement health expense planning.
What is the best way for employees to contact Lockheed Martin regarding specifics or questions about their retirement benefits? What channels of communication are available, and how can they access the most current and relevant information regarding their retirement planning? These questions aim to encourage thoughtful consideration and discussion about retirement planning within Lockheed Martin, addressing various aspects of the company's benefits while promoting engagement with internal resources.
Contacting Lockheed Martin for Retirement Benefit Queries: Employees should direct specific inquiries about their retirement benefits to Lockheed Martin's HR department or consult the benefits Summary Plan Descriptions available through company resources. These channels ensure employees receive accurate and comprehensive information tailored to their individual circumstances.
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