Continuing to Work Into Your 70s?

It’s a growing trend to continue working past the traditional retirement age. Many Americans have taken to this, either because they need to as they can’t afford to retire sooner, or by choice. It does actually come with some benefits if you continue working into your 70s. In this post, we’ll discuss some of the possible reasons why you may want to do this.

Now the primary reason for this trend is better health later in life. People are healthier longer, and as a result, are able to work longer. However, it’s 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 this matters for two reasons. First of all, the way pensions operated, was that there was a built-in retirement time, either a mandatory or at least strongly-suggested retirement date. Second, people tend to work longer to save for longer now, 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 vanishing.

Furthermore, many people who continue work into their 70s have claimed it helps them keep their minds sharp, keeps them feeling young, and provides opportunities to socialize, something which becomes less common in retirement.

Social Security Benefits From Working Into Your 70s

Staying in the workforce longer enables you to delay claiming your Social Security benefits. This can have a significant financial advantage. You see, each month you wait to claim after turning age 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 that this maxes out after you turn age 70. After you turn 70, you’re eligible for the maximum benefit per check. Delaying benefits beyond age 70 is only costing you money.

You could begin Social Security while you’re still working if you want to. You can apply for Social Security over the phone, online at ssa.gov, or by visiting your local Social Security office. Make sure you know your Social Security number and have a copy of your W-2 from the previous year. Also, if you weren’t born in the U.S., your birth certificate and proof of citizenship.

The Impact on Required Minimum Distributions

Required Minimum Distributions (RMDs) are government-mandated withdrawals from your retirement plan accounts. This applies to most employer-issued retirement accounts, except Roth IRAs. Retirees must begin taking RMDS once they reach age 70 1/2. That is, unless you’re still working at that age. In this case, you can delay RMDs on some plans, such as 401(k)s. If you’re still in the workforce, and own 5% or less of the company you work for, you have to begin RMDs only once you actually do retire. Delaying RMDs may benefit you if you don’t have as much saved for retirement as you’d like to. This is because it allows 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 to, rather than the government-mandated amount, which might be more than what you want to remove.

However, when you finally do retire, RMDs will be higher, a consequence of your higher account balance. And, whatever you do, make sure you don’t forget about your RMDs once you’re required to start taking them. Failing to withdraw the required amount will result in a 50% penalty on the extra you were supposed to withdraw. It’s ultimately 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 Anticipated

There are some negative tax implications to continuing work into your 70s. Most people expect they’ll end up spending less money as they age, and may even think they’ll be in a lower tax bracket. However, this may not be true if you continue work, while also drawing upon your retirement savings or your Social Security benefits at the same time. You’ll owe taxes on your employment income, any money you withdraw from tax-deferred retirement plan accounts, and you’ll owe taxes on up to 85% of your Social Security benefits if your income exceeds $25,000 (for a single individual, the amount is $32,000 for a married couple). This could result in a higher tax bill than you anticipated. While this is something you need to be wary of, you’ll probably still come out ahead if you continue to work, especially if you got a late start on your retirement savings and are concerned 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 More Difficult As You Age

The opportunity to continue to work into your 70s often depends on your job’s responsibilities. Many jobs require physical labor that older workers have a harder time 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 to) or not, we may be able to help you keep your savings protected and earn a reasonable rate of return** on them. These are necessary features (if you ask us, anyway) to any financial strategy. Reach out to us to learn more.

Sources: AARP, The Motley Fool