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When it comes to retiring from your FedEx company, 65 is the new 55, which means you could be able to continue working while filing for Social Security benefits. Your compensation may have an impact on your monthly income, your annual tax liability, and your Medicare premiums if you retire from FedEx and take up a part-time employment or some consultancy work.
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 FedEx 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 FedEx while collecting Social Security, here is what you need to keep in mind:
Timing Matters
Your monthly income will be permanently lowered if you begin receiving Social Security benefits before reaching your full retirement age (FRA), which varies based on the year of your birth (66–67). Your monthly benefits may be up to 30% less if you file for benefits at the earliest age of 62 than they would be at full retirement age (FRA). 1.
Additionally, until you reach the full retirement age (FRA), there will be an earnings test: Your benefits will be lowered by $1 for every $2 of earned income beyond the cap in 2022 if your total income exceeded $19,560.
The earnings test maximum is $51,960 in 2022, the year you reach full retirement age (FRA). Your benefits will be lowered by $1 for every $3 of earned income that exceeds the limit.
These diminished advantages don't simply "go away." Your monthly Social Security check will be enhanced once you reach full retirement age (FRA) to make up for payments withheld earlier owing to excess earnings if your benefits have been lowered as a result of earnings.
Note: Investment income, pension payments, government retirement income, military pension payments, and other comparable forms of "unearned" income are not included in earned 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
Federal income taxes are applied to Social Security benefits above a specific threshold of "combined income," independent of the earnings test. Your adjusted gross income (AGI), two nontaxable interests, and half of your Social Security benefits typically make up your combined income.
- 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 FedEx clients that this applies. 3
State Social Security Tax
The eleven states below impose a tax on Social Security benefits to varying degrees.
Colorado
The pension-subtraction scheme in Colorado exempts certain Social Security payments as well as up to $24,000 in pension and annuity income. Beginning at age 55, the exemption is determined by your age.
Connecticut
Social Security benefits may be wholly or partially exempt in Connecticut depending on the filing status and income of the individual.
Kansas
Depending on the taxpayer's income, Kansas exempts Social Security benefits from state tax. Regardless of your filing status, if your federal adjusted gross income (AGI) is $75,000 or less, your Social Security benefits are free from Kansas income tax.
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
For people who meet the IRS definition of full retirement age, Rhode Island offers an exemption from Social Security taxes. The federal Adjusted Gross Income (AGI) for eligible taxpayers must be $88,950 for single filers or $111,200 for married couples 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 used to calculate the taxable part of Social Security payments in accordance with federal law, but it later implemented exemptions for taxpayers with earnings under $25,000 for single filers and $32,000 for other statuses. Higher earners receive benefits that are taxed at progressively higher rates; there is no exemption for adjusted gross income (AGI) of more than $55,000 for single filers or more than $70,000 for joint filers.
Medicare & Social Security
You will be responsible for paying Social Security and Medicare taxes on any earnings you make in retirement, in addition to federal and possibly state income taxes. These withholdings have no upper age limit and are not affected by a person's eligibility for Social Security payments.
These earnings may also be taken into account when determining your benefits. Every year, the Social Security Administration reviews your earnings history and, if necessary, increases your benefit in accordance with these higher earnings.
Could your benefits be harmed if your retirement income is significantly lower than it was before?
No. This is because the benefit payment is still based on your 35 highest years of earnings. If this were to replace any of the lower 35 years, at worst there would be no effect, and at best it may be beneficial.
Note: If you make more than a certain amount, you may find yourself in a higher tax bracket as well as a higher Medicare premium level after you turn 65. For the majority of participants, Medicare sets the cost (premium) for Part B at a fixed rate ($170.10 per month for 2022); however, for individuals with an annual income over $91,000 and married couples with an annual income over $182,000. These members with higher incomes may have monthly expenses ranging from $238.10 to $578.30 in 2022.
You can be required to pay IRMAA (Income-Related Monthly Adjusted Amount) in addition to your Part B or Part D premium if your income exceeds a specific threshold. To find out more about whether you are impacted, we advise you to speak with a tax expert.
Can I Contribute to a Retirement Account?
Maintaining earned income beyond Social Security benefits allows you to continue making contributions to retirement savings accounts, such as 401(k)s, Roth IRAs, regular IRAs, and health savings accounts (HSAs).
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 FedEx retirement plan, is a different story. In general, you can continue stashing away money in your current FedEx-provided plan as long as you're still working, even part-time, and you can delay taking your RMD until after you retire.
These extra savings can be beneficial, particularly if you're falling a little short of your savings targets. Even when your working career is coming to an end, the combination of the additional savings, tax-deferred growth potential, and the flexibility to postpone using your resources can be quite beneficial.
What are the implications of the Funding Target Attainment Percentage for FedEx Corporation employees, and how does it impact the security of the pension benefits offered by FedEx Corporation? This question seeks to explore the nuances of the funding target attainment percentage as reported in the annual funding notice, examining how this metric not only reflects the financial health of FedEx Corporation's pension plan but also how it affects employee confidence in future benefit payments and retirement planning.
Funding Target Attainment Percentage: The Funding Target Attainment Percentage for FedEx Corporation indicates the degree to which the pension plan is funded. A percentage of 101.33% for 2022 suggests that the plan has sufficient assets to cover its liabilities, providing security for employees' pension benefits. This high percentage likely increases employee confidence in the stability and reliability of their future pension payouts, essential for long-term retirement planning.
How does the merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan influence the benefits currently available to FedEx Corporation employees? This question aims to delve into the practical changes that may arise due to this merger, assessing whether it aligns with employee expectations regarding their pension benefits and how the transition process is managed by FedEx Corporation.
Merger of Pension Plans: The merger of the FedEx Freight Pension Plan into the FedEx Corporate Employees’ Pension Plan appears to have been strategically managed to maintain benefit stability. Despite increasing liabilities by 5.3%, the merger was structured to ensure no negative impact on the benefit amounts payable to participants from either plan, preserving the expected pension benefits for all affected FedEx Corporation employees.
In terms of investment strategies, what measures does FedEx Corporation implement to ensure that its pension plan investments align with the long-term liabilities expected to be paid out to retirees? This question encourages an exploration of the investment policies in place, examining the asset allocations and risk management strategies that FedEx Corporation employs to ensure sustainable funding for its pension obligations, which could potentially include detailed analyses of stocks, debts, and alternative investments.
Investment Strategies: FedEx Corporation employs a diversified investment strategy across equities, fixed income, and alternative investments, aiming to meet long-term pension liabilities. This approach, which includes both active management strategies and the limited use of derivatives, is designed to generate returns that exceed market indices, thus ensuring adequate funding of pension obligations.
What options do employees of FedEx Corporation have for accessing their pension plan statements, and how frequently are these statements generated? The focus here is to understand the communication strategies employed by FedEx Corporation regarding pension benefit statements, including technological access points and the importance of these documents for employee financial planning.
Pension Plan Statements: FedEx Corporation provides annual pension plan statements through their Retirement Service Center, available electronically each fall. Employees can access their statements online or request them if notifications are not received, ensuring transparency and aiding in personal financial planning.
How are contributions to the FedEx Corporation Employees’ Pension Plan determined, and what role do excess contributions play in the plan's overall funding strategy? This question aims to educate employees about how the company balances mandatory contribution levels with potential excess contributions, exploring how these factors interact to influence the plan's solvency and employee benefits.
Contributions to the Pension Plan: Contributions to the FedEx Corporation Employees' Pension Plan are calculated to meet at least the minimum legal requirement and potentially include voluntary excess contributions. These excess contributions can help manage the plan's funding level and ensure its solvency, benefiting overall pension security for employees.
What types of benefits are guaranteed under the Pension Benefit Guaranty Corporation (PBGC) for FedEx Corporation employees, and what limitations exist that employees should be aware of? By focusing on the guaranteed benefits, this question prompts a discussion on the security of specific benefits provided by FedEx Corporation and highlights limitations, allowing employees to understand their rights fully.
PBGC Guarantee: The Pension Benefit Guaranty Corporation guarantees certain types of benefits for FedEx Corporation employees, such as pension benefits at normal retirement age and most early retirement benefits. However, there are limitations, such as exclusions for benefits without vested rights and recently increased benefits, which employees should be aware of to fully understand their pension security.
In what ways does the FedEx Corporation plan to adjust its pension funding strategy in light of changing federal laws that impact pension obligations? Employees are encouraged to consider how legislative changes influence corporate policies surrounding retirement benefits and the proactive strategies FedEx Corporation might take to remain compliant while ensuring the security of employee pensions.
Adjustments to Funding Strategy: FedEx Corporation is likely to adjust its pension funding strategy in response to legislative changes affecting pension obligations, such as those introduced by recent acts adjusting how pension liabilities are calculated. This proactive approach aims to ensure compliance with new laws while continuing to secure the financial health of the pension plan.
What are the steps that FedEx Corporation employees must take if they are considering retirement, particularly in how to navigate the pension plan and gain access to their benefits? This question aims to provide clarity on the retirement process, ensuring that employees are equipped with the necessary information regarding required documentation, timelines, and points of contact within FedEx Corporation.
Steps for Retirement Planning: Employees considering retirement should contact the FedEx Retirement Service Center to navigate their pension plan benefits. This process involves understanding necessary documentation, timelines, and available support, facilitating a smooth transition into retirement.
How does FedEx Corporation plan to manage potential funding shortfalls in the pension plan, and what mechanisms are in place for notifying plan participants should such an event occur? Employees would need to understand the proactive measures put in place by FedEx Corporation to address funding-related challenges while also knowing what this means for their benefits.
Managing Funding Shortfalls: In the event of potential funding shortfalls, FedEx Corporation has policies in place to manage such situations, including strategic contributions to mitigate shortfalls. The company maintains transparency with plan participants about funding levels and any significant changes affecting the pension plan.
For those seeking more information about their pensions and retirement options, how can FedEx Corporation employees contact relevant departments, and what resources are available for assistance? This question provides an opportunity for employees to familiarize themselves with contact points such as the FedEx Retirement Service Center, emphasizing the importance of open communication channels for addressing inquiries related to their pensions. Feel free to consult the provided document for more in-depth exploration of these topics.
Contacting for Pension Information: FedEx Corporation employees seeking more information about their pensions or retirement options can contact the FedEx Retirement Service Center. This center provides essential resources and support, ensuring employees have access to all necessary information regarding their retirement planning.
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