Should You Continue to Work Into Your 70s?
An ever-growing number of Americans have been working past the traditional retirement age. Either because they can’t afford to retire sooner (an unfortunate possibility) or by choice. It does come with some benefits if you continue working into your 70s. Today, we’ll discuss some possible reasons why you may want to do this.
The primary reason the number of older workers is increasing is better health later in life. Recently, COVID-19 notwithstanding, older workers are healthier than they used to be. People are healthier longer, and as a result are able to work longer.
However, this trend is also due to the growing need to increase retirement savings. “We’re getting into the generations of people who didn’t have pensions, unless they were in the public sector,” and that really matters for two reasons. Firstly, the way pensions used to operate, was that there was a built-in retirement date, either a mandatory or strongly-suggested retirement age. And secondly, people tend to work longer to save for longer, as they’re more worried about running out of 401(k) savings in retirement, a fear that wouldn’t exist if pensions weren’t now disappearing.
Additionally, many people who continue to work into their 70s have claimed it helps their minds stay sharp, keeps them feeling young, and provides opportunities to socialize, which becomes less common in retirement.
Social Security Benefits
Working longer also enables you to delay claiming your Social Security benefits, which can have a significant financial advantage. Each month you wait to claim after turning 62, will result in a bigger monthly Social Security check. “Every year you delay, that’s a raise you’re giving yourself forever.”
However, remember this maxes out at age 70. After you turn 70, you’re eligible for the maximum benefit per check. Delaying benefits beyond age 70 is just costing you money.
You’re able to begin Social Security even if you’re still working if you want to. You can apply for Social Security online at ssa.gov, over the phone, or by visiting your local Social Security office. Make sure you have your Social Security number and a copy of your W-2 from the previous year. Additionally, your birth certificate and proof of citizenship if you weren’t born in the U.S.
Required Minimum Distributions
Required Minimum Distributions, or RMDs, are government-mandated withdrawals from your retirement accounts. This applies to most retirement plan accounts, except Roth IRAs. Retirees must begin taking RMDS at age 70 1/2. But, if you’re still working at that age, you can delay RMDs on some plans, like 401(k)s. If you’re still working, and own no more than 5% of the company you work for, you have to begin RMDs in the year you retire.
Delaying RMDs may help you if you don’t have as much saved for retirement as you’d like to. This is because it enables you to keep your existing savings in your retirement account, where they can grow for longer. You can withdraw only as much as you need, rather than the government-mandated account, which might be more than what you want to remove.
However, when you finally retire, RMDs will be higher, due to your higher account balance. And, whatever you do, don’t forget about your RMDs once you are required to start taking them. Failing to withdraw the required amount will result in a 50% penalty on the extra you should’ve withdrawn. Better to take the money out and pay taxes on it than have half of it taken away.
You May Be in a Higher Tax Bracket Than Expected
There are some negative tax implications to continuing work into your 70s. You see, most people expect that they’ll end up spending less money as they age, and may even believe they’ll be in a lower tax bracket. But, this may not be true if you continue work, while also drawing upon your retirement savings or Social Security benefits at the same time.
You’ll owe taxes on your employment income, and any money you withdraw from tax-deferred retirement accounts, and taxes on up to 85% of your Social Security benefits if your income exceeds $25,000 (at least, for a single individual, $32,000 for a married couple). This could result in a higher tax bill than expected.
If you don’t touch your retirement savings until you actually leave the workforce, you’ll have larger RMDs when you retire. This could force you to withdraw more money than you intended from your retirement accounts each year, raising your taxes.
While this is still something you need to be wary of, you’ll (probably) still come out ahead if you continue work, especially if you got a late start on your retirement savings and are worried about potentially running out of money.
“Working over 70 can have several benefits, but there are also potential tax drawbacks. You also need to understand how your age affects your Social Security benefits so you don’t miss out on a valuable supplementary source of income that could help you cover your expenses.”
Some Jobs May Be Harder
The opportunity t work into your 70s often depends on the job’s responsibilities. Many jobs require physical labor that becomes harder for workers to continue doing as they age. “If you’re a blue-collar worker, working in your late 60s may not be feasible, physically.”
Regardless of whether you want to keep working into your 70s (hopefully not because you need the money), we have strategies to help you keep your savings protected and earn a reasonable rate of return** on them. Reach out to us to learn more.