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Working Past Age 70

J Terwilliger 2014
James P. Terwilliger, PhD, CFP®
Senior Vice President, Senior Planning Advisor
[email protected]
(585) 419-0670 x50630

Age 65 tended to be the standard retirement age back a generation or more ago. That was when working for a single company for 40-plus years and receiving a guaranteed lifetime pension during retirement were the norm.

My, how things have changed.

For a while, early retirement was the rage. Today, we are seeing an evolving reversal. More and more folks, for a variety of reasons, may still retire early but then continue to work part-time or pursue a second career. …and sometimes a third career.

The emotional and health benefits from doing so are well-documented. The financial benefits from working longer are many. For example, by working longer, you can:

  • Add additional earned income to your household cash flow, a portion of which can be saved through employer retirement plans or outside IRAs, Roth IRAs, and/or investment accounts, resulting in additional wealth accumulation.
  • Reduce the number of years that your savings/investments will need to last to see you through retirement.
  • Increase your Social Security wage base which, for many people working full time, will enhance monthly Social Security retirement benefits, even if you are currently receiving retirement benefits.
  • Make it easier to delay the start of Social Security retirement benefits, with each year of delay increasing these benefits by 8%.
  • Maintain coverage under an employer’s health insurance plan, particularly beneficial cost-wise if you are pre-Medicare age (65).
  • Maintain your current standard of living and potentially enhance that standard of living when you ultimately retire.

Once you reach the age 70 threshold, all the benefits above continue (with one exception) and some additional financial benefits to working longer begin to appear.

The one exception is Social Security retirement benefits. The advantage of delaying the start of these benefits no longer continues beyond age 70.

However, for folks receiving Social Security, even beyond 70, additional years of earned income can increase benefits beyond the annual COLA adjustment if the additional years replace earlier lower-earning years in the retirement benefit formula.

Perhaps the most significant additional financial benefit to working past age 70 has to do with Required Minimum Distributions (RMDs) from pre-tax retirement accounts. This is important to those who do not need some or all of these distributions to maintain a positive household cash flow. Let’s look at two categories of such pre-tax accounts:

Employer Retirement Plans – 401(k)s, 403(b)s, 457 Plans.

If you are age 70 ½ or older and still working, you may be able to delay taking RMDs from the company plan. This is commonly known as the still-working exception. You can also continue to make contributions to the plan.

For this exception to apply you must: be considered employed throughout the entire year, own no more than 5% of the company, and participate in a plan that allows one to delay RMDs. Not all allow this option.

Your first RMD will be due for the year you ultimately retire or otherwise leave employment. You have the option to delay taking that first RMD up to April 1 of the following year. If you do, you’ll have to take two RMDs during that following year – one by April 1 and one by December 31. Then in subsequent years, you will get into the standard one RMD per year cycle.

While you generally can leave your money in the plan after leaving employment, most folks choose to perform a direct rollover to a traditional IRA where you have a greater range of investment choices and distribution options.

Individual Retirement Plans – Traditional, SIMPLE, and SEP IRAs.

If you are age 70 ½ or older and still working, you cannot delay taking RMDs from these plans. You must start. In addition, you no longer can make Traditional IRA contributions, but you can continue to contribute to your SIMPLE and SEP IRAs as long as you are receiving earned income.

A very attractive option to reduce or eliminate having to take RMDs from your Traditional and SEP IRAs is to roll some or all over to your employer retirement plan if you are still working. To make this work, your plan must allow this, which isn’t always the case. Also, if you’ve already reached the year in which you turn age 70 ½ or later, you must first take any IRA RMD before rolling the balance over to the plan.

Be sure to work with a trusted financial planner when considering how to leverage all the financial benefits available to you by continuing to work, particularly beyond age 70. Contact us with any questions at 585-419-0670.

This material is provided for general information purposes only. Investments and insurance products are not FDIC insured, not bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any of its affiliates. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please consult your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.