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The New Retirement – Includes Work for Many by Beth Jones, RLP®

Sipping martinis and playing golf may be your dream retirement, but chances are you may not have that luxury. Despite the enduring image that marketers portray, the reality is that older workers are staying in the labor force more than ever before. With medical breakthroughs and healthier lifestyles, people are living longer and planning for 30 years or more in retirement. Endless days of leisure can quickly lead to boredom, depression and discontent.

According to the Employee Benefit Research Institute, 45 percent of people age 55 and older are still in the workforce while 29 percent of people ages 65–69 are still working as well. Americans of retirement age opt to stay in the working world for many reasons, including to transition their career to part-time, to make extra money, or to start their own companies. Many of us don’t feel like slowing down. What is appealing to most of us is a life of fulfillment and purpose.

But some people may not find working into their retirement years a matter of choice. They may need to keep working to add to their savings, keep their insurance coverage, or attain their full retirement age to receive their full social security benefits.

Employers may also find it necessary to hang on to their older workers. Nearly 80 million baby boomers are facing retirement, yet there are only about 50 million Gen-Xers to fill those places in the workforce. Companies are discovering that they need to keep their experienced workers as long as possible and are more amenable to part-time, consultative, or job-sharing arrangements to retain skilled workers.

Regardless of the reasons why you may continue working, there are several financial implications you should consider:

You can make more money. According to the Congressional Budget Office, for each year a person of at least age 62 postpones retirement, he or she reduces the need to increase his or her retirement savings by about 5 percent. It also gives that individual more time to earn interest on assets they have already accumulated. And getting health coverage, even if an employer only partially subsidizes it, can save you hundreds of dollars a month.

Your social security benefits may be affected. Depending on your financial situation, you may find it best to wait until you reach your full retirement age to start collecting social security. If you start receiving social security before you reach full retirement age, your total benefits may be drastically reduced: for every $2 you earn over $13,560, you will reduce your social security benefits by $1. This applies to work income, not income from investments, pensions, annuities, capital gains, or interest.

If you’re married, your spouse may want to delay receiving his or her benefits to reduce your total income for tax purposes and to provide a future income stream.

The good news is that once you reach your full retirement age, you can work as much as you want without reducing your social security. Visit www.socialsecurity.gov/retire2/agereduction.htm to find your full retirement age.

Being your own boss may have certain benefits. If you set up your own incorporated business, you may be able to deduct everyday expenses like work-related phone usage, a new computer, office space rentals, and travel expenses. Plus, you can open up a new retirement plan and contribute to it.

Simplified Employee Pensions (SEPs), Savings Incentive Match Plans for Employees (SIMPLEs), Individual 401(k) plans and Keoghs are designed to benefit small businesses and sole proprietorships. They have the advantage of tax-deferred growth and contributions are tax-deductible. And, your own business could match the contributions you, as an employee, might make.

Working might result in certain penalties or income reduction. Take care that your extra income from working doesn’t bump you into a higher tax bracket. Chances are you’re probably paying for your retirement from several sources of income, such as a pension (becoming rare), 401(k), IRA, and social security. If you are older than age 70½, you are likely taking the required minimum distribution (RMD) from your retirement plan accounts as well. Add a paycheck to that mix and you might be making more money than you thought. This can also expose more of your social security benefits to income tax.

In addition, if you are or were a state or public employee, check with your retirement board to see if you are subject to income restrictions and whether working will impact the amount of pension money you receive.

What is your idea of a dream retirement? Do you have a written plan? In these uncertain economic times, you cannot afford to “wing it”. If you have a plan, get it out, dust it off and review it with your trusted advisor. If not, you should consult a qualified financial planner to help you navigate the myriad details and help you make your dreams a reality.


Beth Jones, RLP® is a Registered Life Planner and Financial Consultant with Third Eye Associates, Ltd, a Registered Investment Adviser located at 38 Spring Lake Road in Red Hook, NY. She can be reached at 845-752-2216 or www.thirdeyeassociates.com. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC.



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