It’s no secret that
Americans are working longer. But some are working well past traditional
retirement age: the fastest-growing segment of the labor force is workers over
age 65, according to the U.S. Bureau of Labor Statistics – and the growth is
especially pronounced among workers over age 70.
Working longer
certainly can boost the odds of a successful retirement plan via higher Social Security income, retirement account contributions and
fewer total years of dependence on portfolio accumulations.
But working well past
traditional retirement age does present some complications. Much of our
retirement benefits structure still is geared toward a more traditional
retirement age. The Medicare enrollment age is 65; Social Security’s full
retirement age (FRA) is 66, on its way to 67
in 2027. Required Minimum Distributions (RMDs) must begin at age 70 ½. And the
tax-deferred retirement system is predicated on the idea that older people will
be in lower tax brackets when funds are withdrawn than during the traditional
wealth accumulation years.
I’ve put together a Guide
to Navigating Benefits if You’re Working Past Age 65, which is available as
a free PDF download. You’ll receive this report free when you sign up
for the free weekly RetirementRevised.com email newsletter. You’ll get
weekly updates on Social Security, Medicare, investing in 401(k)s and IRAs,
careers after age 50 and much more. Click here to subscribe and
receive the guide.
Meanwhile, here is a
summary of the key retirement planning items to keep in mind.
Social
Security
Working longer is a
great way to get the most out of Social Security. Benefits are calculated using
a formula called the primary insurance amount, or PIA. For people working
in their 60s, there’s very little sense in filing early – unless you have
reason to think your life expectancy will be unusually short. Earlier filers
who have income from work in 2015 of more than $15,720 are hit with a penalty
(Social Security defines “income” in this context as wages from employment or
net earnings from self-employment). If earnings exceed the limit, $1 will be
deducted from benefit payments for every $2 earned over that amount. The
withheld benefits are added back into benefits after you reach full retirement
age. After that age, they can have unlimited income and receive Social Security
benefits without penalty.
Likewise, there’s no
reason to wait beyond age 70, even for people who are still working, since
credits stop accruing at that age. However, it’s important to keep an eye on
taxation of Social Security. Benefits are taxed using a “combined income”
formula that is determined by adding together adjusted gross income, tax-exempt
income and half of the Social Security benefit. If that total exceeds $25,000
for individuals ($32,000 for married couples), then 50 percent if the excess
must be included in income for tax purposes; if it’s over $34,000 ($44,000 for
couples) then 85 percent of the excess is included in your income.
Medicare
Medicare filing
errors can be costly.
Eligibility begins at
65, and sign-up is automatic if you already receive Social Security benefits.
If not, it’s important to sign up sometime in the three months before your
65th birthday up through the three
months following, because failing to do so can lead to expensive premium
penalties down the road. (Although signup can be done up until three months
after the 65th birthday, but there’s a waiting period for people who don’t
enroll by the end of the month that they turn 65.)
Monthly Part B
premiums jump 10 percent for each full 12-month period that a senior could have
had coverage but didn’t sign up. That can really add up: a senior who fails to
enroll for five years ultimately would face a 50 percent Part B penalty–10
percent for each year. Penalties also are applied to Medicare Part D
(prescription drugs) and Medicare Advantage plans (Part C) that include drug
coverage.
