There are some real benefits to working beyond "normal" retirement age. They include a bigger nest egg and more Social Security benefits. While remaining in the workforce later in life can add financial opportunities for retirement, it can also present a few pitfalls.
Kiplinger’s recent article, “Smart Financial Moves If You Work Late in Life,” advises you to follow these steps to be certain that staying on the job is worth it.
Control your tax bill. Even if you are still getting a paycheck, retirement income will start, and your income could spike. Once you reach age 70, your Social Security benefits stop increasing. As a result, there's no reason not to claim the money. Until then, if your full retirement age is 66, claiming your benefit at 70 gives you a 32% boost to your monthly benefit. When you hit 70½, you must begin taking your required minimum distributions (RMDs) from retirement accounts. You can delay RMDs from a current 401(k) plan (not IRAs or old 401(k)s),if you’re working and don't own 5% or more of the company. Your wages and RMDs can result in up to 85% of your Social Security benefits being subject to tax, and your RMDs are generally fully taxable. Plan ahead and consider converting money from a traditional IRA to a Roth IRA, when you're younger, so you pay taxes at your current tax rate, not your future rate.
Lower your tax bill. Your tax rate could fluctuate based on how long you and your spouse work and when you each collect benefits or start RMDs. In a low income year, wait with your charitable contributions or other deductions for a later year, when you anticipate a higher rate.
Keep saving! If you’re earning wages, you can keep contributing to traditional IRAs until the year you hit 70½ and to Roth IRAs at any age, provided you are under the income thresholds. You’re allowed to put $13,000—or the amount of your taxable compensation, whichever is lower—into your IRA and your spouse's IRA in 2017, if you're both 50+. In addition, you can keep contributing to your current employer's 401(k). The limit for 2017 is $24,000 for those 50 and older.
Watch your pension. If you have a defined benefit plan, review the details of your plan to see if your pension is based on your five most recent years of earnings. If so, you’d probably lose benefits by working part-time at the end of your career. There are some pension plans that won't increase benefits if you work beyond 65, and in some instances, you can't collect until you leave. Once you leave your employer, you might be able to collect your pension, even if you’re working elsewhere. You could also ask your employer if you can retire, take your pension, and then come back as an independent contractor.
Plan your Medicare decisions. You need to enroll in Medicare Part A, which is free, at age 65, but you can wait to sign up for Medicare Part B if you continue working and are covered by your employer’s health plan. Make certain that it's the primary payer. It should be, if your company has 20+ employees.
Reference: Kiplinger (May 2017) “Smart Financial Moves If You Work Late in Life”
For help with maximizing your retirement benefits, contact our office at 801-438-7120. We can also refer you to a financial planner who fits your needs.