Ken has been a financial advisor for 30+ years and one thing that he sees from time to time is retirees getting ‘bored’ and feeling like they don’t have purpose, and they want to go back to work, volunteer, or get involved in some type of organization. If you believe you are in this group of people, you are not alone as certain surveys have shown retirees over the age of 65 rejoin the workforce in some way.
There are important factors to take into consideration if you are planning on taking on some work in your retirement years – social security benefits, medicare and health insurance coverage, pensions, and retirement accounts may all be affected in some way. Let’s dig into each topic and see how it all plays out.
Social Security Benefits
Fortunately, if you return to work you can still collect social security benefits. Many people decide to take their benefits at 62 and they may not realize that they are reducing their benefits up to 30% by doing so, and not waiting until their ‘full retirement age.’ As of 2021, a retiree can earn up to $18,960 without impacting their social security benefits, but once that threshold is passed, the check you receive decreases $1 for every $2 earned.
Retire Guide presented a great example of how this all works, stating “say you start collecting Social Security benefits at age 62. At age 64, you get a part time job and earn $25,000 a year, which is $6,040 over the limit, so your Social Security check will be reduced by $3,020 that year. In the year reach your full retirement age, you can earn up to $50,520 in 2021 before your benefits are docked. After the $50,520 threshold, your benefits are reduced by $1 for every $3 earned.”
Depending on your situation, if social security is your only source of income, you don’t need to worry about paying taxes on it, but if return to work and start making money again, that changes things. The Social Security Administration deems working and being paid out benefits as having combined income – your adjusted gross income (what you get paid before taxes), nontaxable interest, and one half of your yearly social security benefit. If this combined income number is less than $25,000 for an individual, then social security benefits aren’t taxable. If your combined income is between $25,000 and $34,000, you may owe income tax on up to 50% of your benefits, and if your combined income is more than $34,000, up to 85% of your benefits can be taxed.
Medicare, Private Insurance and Post-Retirement Work
If you are 65 or older, you might be someone who gets health insurance from medicare, which is covers two expenses: hospital insurance and medical coverage, and in some cases prescription drugs. If you decide to work again and your employer offers private health insurance, you can utilize it and also keep your medicare coverage if you so choose.
It is advisable to consider dropping the medical coverage prong of mediare if you return to work so you can avoid paying the $148.50 monthly premium, but there are some stipulations that you need to know if you are considering doing this. Your new employer must have more than 20 employees, and if they don’t you may be penalized for dropping the medical coverage, but if there is active employer coverage, you can choose to disenroll from it.
If you end up leaving that employer and return to retirement without working, you must sign back up for medical coverage through medicare within 8 months. If you are a higher earner – single and earn more than $88,000 but less than equal to $111,000 you pay an additional $59.40 on medical coverage, OR married filing jointly incomes above $170,000, you will get hit with the additional charge as well.
Pensions and Retirement Accounts
There are different implications when returning to work and whether or not you will continue to receive pension payments. Your personal pension plan may be different from that of someone else, so it is important to look into your personal plans details to see some of the things you have to abide by. In some cases you can participate in part-time or contact work and still receive pension benefits, and in others, working for a former employer may terminate your pension benefits for the time being. In other instances, you can usually collect a pension and work full time as long as you are with a different company. In summary, it is a good idea to check the details of your plan with a provider and check with the HR department of whoever you are working for to understand certain implications.
All retirement accounts, besides the Roth IRA are subject to required minimum distributions starting at age 72, regardless if you are retired and working, or retired and not working. However, you may be able to delay taking required minimum distributions (RMDs) from your current employer-sponsored retirement account like the 401(k) or 403(b). To delay the RMD, you must still be working and have an employer sponsored retirement account you work for.
You can also continue to add money to your retirement accounts if you are working under the SECURE Act of 2019. Those who are 50 years or older can contribute a maximum of $7,000 a year to an IRA, and should also take advantage of the employer match program for 401(k)’s if your company offers it.
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