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Working into the “Retirement” Years – Some Financial Considerations

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

More and more folks these days are working beyond, sometimes well-beyond, what used to be considered the standard retirement age of 65.

Recent changes in full retirement age for Social Security are consistent with this trend – age 66 for workers born between 1943 and 1954, ratcheting up to age 67 for those born in 1960 and later.

Continuing to work provides multiple benefits relative to having enough money to last through 20-30 years or more of ultimate retirement. Doing so:

  • provides additional cash flow to the household, delaying the need in many cases to access the retirement nest egg
  • allows for additional nest egg accumulation through continued savings and growth of investments
  • reduces the number of years that the nest egg must support an ultimate retirement
  • may allow one to defer taking Social Security retirement benefits, resulting in an 8% increase in monthly benefits for each year of deferral up to age 70

Other, non-financial factors also are at play here. Many times, continuing to work enhances a person’s quality of life, particularly if that person enjoys work and the daily mental/social stimulation that comes from it.

In addition to the benefits listed above, let’s explore some of the other options and opportunities available to folks who decide they want (or need) to work through their late 60s and into their 70s or even 80s.

Required Minimum Distributions (RMDs)

While minimum distributions are required for traditional, SEP, and SIMPLE IRAs and previous-employer 401(k)/403(b) plans after reaching age 70-1/2, the same is not true for plans associated with a current employer. If you are still working, participating in a current employer plan, and are not a 5% or greater owner of the company, RMDs are not required!

Better yet, some employer plans accept rollovers from previous-employer plans and IRAs. A good strategy here is to roll all such accounts over to the current employer plan and avoid all RMDs, if household cash flow allows. This can continue for years until you retire for good, allowing more time to let this consolidation of pre-tax money appreciate.

After leaving the workforce permanently, 401(k)/403(b) RMDs must then start. This is true for both Roth and traditional employer plans. The nice feature about a Roth employer plan is that once rolled over into a Roth IRA, RMDs are no longer required. As we all know, the same is not true for a rollover into a traditional IRA.

Retirement Plan Contributions

As long as earned income continues and income limits are not exceeded, contributions to traditional IRAs may continue to age 70-1/2, beyond which point contributions are off-limits. Contributions to 401(k)/403(b) plans, SEP IRAs, and SIMPE IRAs, however, may continue if still working.

You also can continue to make Roth IRA contributions regardless of age, provided there is enough earned income to cover the contribution and modified adjusted gross income does not exceed a given limit. If married and working, you can make Roth IRA contributions for you and your non-working spouse, provided your earned income is equal to or higher than the total amount contributed.

Health Insurance

If you are still working at age 65 and beyond, there are some choices to be made regarding health insurance. Assuming the company employs 20 or more people, there are two choices:

  • Continue with the employer’s plan. In this case, you should not enroll in Medicare Part B at age 65. If the plan is a standard full plan, enrolling in Medicare Part A is fine, but the employer plan is your primary insurance. If you qualify for Medicare, Part A is free. If the plan is a high-deductible plan, you also do not want to enroll in Medicare Part A. You cannot participate in a high-deductible Health Savings Account (HSA) if enrolled in Part A.
  • Enroll in Medicare Parts A and B. Supplement with a Medicare Advantage Plan with drug coverage included or a Medicare Supplement Plan and separate Medicare Part D coverage for drugs. Both types of plans are available through local insurers, such as MVP or Excellus, at a very reasonable additional cost.

Choose the plan that works best for you in terms of cost and coverage. Be aware that Medicare Part B, and more-recently Part D, premiums are indexed to household income.

As we always advise, be sure to partner with a trusted financial planning professional to help chart your course through working-beyond-age-65 waters.  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.

CNB Insurance Agency is a wholly owned subsidiary of The Canandaigua National Bank and Trust Company. Products offered through CNB Insurance Agency are not deposits or obligations of, or guaranteed, or endorsed by, The Canandaigua National Bank and Trust Company. These products are not federally insured by the Federal Deposit Insurance Corporation or the Federal Reserve Board. Insurance Companies offering products through CNB Insurance Agency are independent of and not affiliated with The Canandaigua National Bank and Trust Company or CNB Insurance Agency.