Sometimes, older Americans discover that retirement just
isn’t a good fit.
Whether due to needing more income or wanting personal
fulfillment, many older Americans head back to work after calling it quits. Of
workers age 65 or older, 40% had previously retired at some point, according to
a report from Rand Corporation.
However, if you are among those thinking about picking up a
job again, it’s worth considering how the extra income could affect other parts
of your financial life.
Of course, extra income in and of itself isn’t bad.
“If you earn even $5,000 and it means you don’t have to take
$5,000 out of your retirement savings, that’s money that can be invested,” said
certified financial planner David Demming, president of Demming Financial
Services in Aurora, Ohio. “It puts less stress on your asset base.”
Here’s what to know.
If you tap Social Security before your full retirement age
(as defined by the government) and are still working or return to work, your
wage income could reduce your benefits.
While delaying Social Security for as long as possible means
a higher monthly check, many people take it as soon as they can — at age 62 —
or soon thereafter.
“Anyone collecting Social Security and under full retirement
age should carefully evaluate returning to work based on how much they might
reduce their benefits,” said CFP Shon Anderson, president of Anderson Financial
Strategies in Dayton, Ohio.
If you do start getting those monthly checks early, there’s
a limit on how much you can earn from working without your benefits being
affected. For 2021, that cap is $18,960.
If you earn more than that, your benefits will be reduced by
$1 for every $2 you earn over that threshold.
Then, when you reach full retirement age around age 66 or 67
— the exact age depends on your birth year — the money comes back to you in the
form of a higher monthly check. (And
remember, depending on your overall income, up to 85% of your Social
Security benefit is subject to federal income tax.)
At that point, you also can earn as much as you want from
working without it affecting your Social Security benefits.
Also, if you are one of those early takers who is working
and you reach full retirement age during 2021, then $1 gets deducted from your benefits
for every $3 you earn above $50,520.
While you become eligible for Medicare at age 65, it is not
In addition to extra income from a job potentially pushing
you into a higher tax bracket, it also could trigger additional costs for
Basically, higher earners pay a premium surcharge for
Medicare Part B (outpatient coverage) and Part D (prescription drug coverage).
The extra charges start at income above $88,000 for individuals and $176,000
for married couples who file joint returns.
Generally speaking, the government uses your tax return from
two years prior to determine whether you owe those surcharges.
“If someone went back to work making a healthy wage, they
might be in for a surprise with their Medicare premiums going up about two
years later,” Anderson said.
Remember your RMDs
Under changes that took effect last year, age 72 is when you
face required minimum distributions, up from age 70½.
Working when you reach that RMD age can make it easier to
forget those required withdrawals, experts say.
If you’re employed and contributing to your company’s
retirement plan, RMDs generally do not apply to that particular account until
However, you would still have to take those distributions
from any traditional individual retirement account you own, as well as 401(k)
plans from ex-employers. If you don’t, you’ll face a potential 50% tax penalty.
Roth IRAs do not have RMDs while the original owner remains
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