An ever-growing number of older Americans have been continuing to work past the traditional retirement age. This is done either because they can’t afford to retire sooner, an unfortunate possibility many face, or by choice. Continuing work into your 70s does come with several benefits. We’ll discuss some of those benefits with you today: If you’re open to the idea, working into your 70s may be worth considering.
The primary reason that many workers are continuing work later in life, is better health later in life. Recently, COVID-19 aside, older workers are healthier than they’ve been in the past People are healthier longer, and as a result, are able to work longer. However, this trend is also due to the growing need to increase retirement savings. “We’re getting into the generations of people who didn’t have pensions, unless they were in the public sector,” and that matters for two primary reasons. Firstly, the way pensions operated, was that there was a built-in retirement date, either a mandatory or at least strongly-suggested retirement time. Secondly, people tend to work longer to save for longer, as they’re more worried about the possibility of running out of 401(k) savings in retirement, a fear that wouldn’t be relevant if pensions weren’t now vanishing. Furthermore, many Americans to continue their work into their 70s have claimed it helps keep them feeling young, their minds sharp, and provides opportunities to socialize, something which becomes less common after retiring.
Working Past 70 and Social Security Benefits
continuing work for longer also enables you to delay claiming your Social Security benefit. This can provide a significant advantage. Basically, each month you wait to claim after turning age 62 will result in a bigger monthly Social Security check. “Every year you delay, that’s a raise you’re giving yourself forever.” However, remember that this maxes out after age 70. After you turn 70, you’re eligible for the maximum benefit per check, an amount that may vary depending on certain factors. Delaying benefits beyond this point, though, is just costing you money. So make sure to start taking Social Security at that point.
If you want, you can begin Social Security even if you’re still working. You can apply for Social Security over the phone, via visiting your Social Security office, or online at ssa.gov. Make sure that you have your Social Security number and a copy of your W-2 from the previous year. Additionally, make sure to bring your birth certificate and proof of citizenship if you weren’t born in the United States.
Required Minimum Distributions (RMDs)
Required Minimum Distributions (RMDs) are government-mandated withdrawals from your retirement accounts. You must begin taking RMDs at age 70 1/2. This applies to most retirement plan accounts, with the exception of Roth IRAs. But, if you’re still working at that age, you can delay RMDs on some accounts, such as 401(k)s. Essentially, if you’re still working, and own 5% or less of the company you work for, you instead have to begin RMDs in the year you retire, rather than at age 70 1/2.
Delaying RMDs may benefit you if you don’t have as much saved for retirement as you want. It enables you to keep your existing savings in your retirement plan account, where they can continue increasing for longer. You can withdraw only as much as you need, rather than the government-mandated requirement, which might be more than what you want to withdraw. But, as a consequence, RMDs will be higher when you do retire. And, whatever you do, don’t forget about your RMDs and skip them once you are required to start taking them. Failing to withdraw the required amount will result in a 50% penalty on the money you should’ve withdrawn. It’s better to take the money out and pay the taxes on it than have half of it taken away.
You May Be in a Higher Tax Bracket
There are some possible tax implications to continuing work into your 70s. Basically, many people assume that they’ll find themselves spending less money as they age, and may even expect to be in a lower tax bracket. But, this may not be the case if you continue work, while also drawing upon your retirement savings or Social Security benefits at the same time. You’ll owe taxes on the income you take in from work, and on any money you withdraw from tax-deferred retirement accounts. Additionally, you’ll own taxes on up to 85% of your Social Security benefits if your income exceeds $25,000 (for a single individual, $32,000 for a married couple). This could result in a higher tax bill than anticipated.
If you don’t touch your retirement savings until you actually do retire, you’ll have larger RMDs once you do This would force you to withdraw more money than you might want from your retirement accounts each year, in turn raising your taxes.
While this is still something you need to be aware of, you’ll (probably) still come out ahead if you continue work, especially if you got a late start on your retirement savings and are worried about potentially running out of money. “Working over 70 can have several benefits, but there are also potential tax drawbacks. You also need to understand how your age affects your Social Security benefits so you don’t miss out on a valuable supplementary source of income that could help you cover your expenses.”
Some Jobs May Be More Difficult
Whether or not continuing working late into your life is even feasible depends on the responsibilities that your job includes. Many professions require physical labor which becomes increasingly difficult for workers to perform as they age. “If you’re a blue-collar worker, working in your late 60s may not be feasible, physically.”
Regardless of whether you intend to keep working into your 70s (hopefully not because you have to), we have strategies that can help you protect your savings and earn a reasonable rate of return** on them. Reach out to Micheal W. Hart Insurance Agency, Inc., to learn more. We’re always here to help.
Sources: AARP, The Motley Fool
