NEWARK, N.J.--(BUSINESS WIRE)--Whether it’s taking stock of all your potential income sources, making sure you don’t miss out on maximum Social Security benefits or figuring out how to fund post-retirement health-care coverage, there are a number of critical investment decisions Americans in The Retirement Red Zone��"the five years before and after retirement��"should make.

Prudential Financial can help with those decisions. Its retirement experts have developed 12 practical tips to help you manage financial risks so you don’t see, well, red, in The Retirement Red Zone. And some of these decisions are best made right now, during tax season. This week’s tip marks the third in a series that will run through May 6.

Tip No. 3: Analyze the implications of working in retirement.

Whether by choice or necessity, the financial implications of working in retirement are significant in The Retirement Red Zone, according to Robert Fishbein, vice president and corporate counsel in Prudential Financial’s Tax Department. This is particularly relevant as it pertains to taxes and Social Security benefits:

• Social Security and taxes: Social Security benefits are subject to income tax based on the earnings of the recipient. For married individuals, up to 85 percent of the Social Security benefit can become taxable if the couple’s adjusted gross income is greater than $44,000.
• Social Security benefit: In addition, the Social Security benefit itself can be reduced if one is working but has not yet attained the full retirement age. (The full retirement age is 66 for those born between 1943 and 1954 and increases by two months each year for those born after 1954 until the full retirement age becomes 67 for those born in 1960 and thereafter.)

			-- For those who have not reached full retirement age in 2008, Social Security benefits are reduced by $1 for every $2 earned over $13,560.
			-- Individuals who attain the full retirement age of 66 in 2008 can earn $36,120 before turning age 66 and not lose any Social Security benefits.

“An individual deciding whether or not to work in retirement must consider the impact on taxability of Social Security benefits and reductions in benefits,” says Fishbein. “Deciding when to start Social Security benefits is also critically linked to this analysis. You could reasonably decide not to start Social Security benefits while working in order to enhance your Social Security benefit and minimize the adverse income tax consequences of receiving the benefit while working.”

Working in retirement also creates implications for accessing other retirement assets, because the additional job-related taxable income may push you into a higher tax bracket and increase your overall income tax burden. You should also consider what retirement assets to access while working in retirement in order to minimize the income tax liability triggered. “Assuming you are less than 70 ½, it may make sense to avoid tapping a traditional IRA because withdrawals will be subject to income tax at ordinary income tax rates,” Fishbein says. “Alternatively, you might consider using mutual funds as a source of income in the early years of retirement, because mutual funds are only partly taxable and generally subject to tax at the more favorable capital gains rates.”

Prudential Financial, Inc. (NYSE: PRU - News), a financial services leader with approximately $648 billion of assets under management as of December 31, 2007, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping individual and institutional customers grow and protect their wealth. The company’s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit www.prudential.com/retirementincome.

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Source: Prudential Financial, Inc.

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