Cents and Sensibility
Cents and Sensibility
ONCE you retire, will you ever return to work? A lot of your peers think they'll do just that. In fact, 67 percent of workers today expect to work for pay after retiring, according to a survey by the Employee Benefit Research Institute. If you do end up going back to work, you need to do some planning -- because your earned income will affect virtually every financial aspect of your retirement. Return to work
necessitates financial
reviewThe first issue to think about is taxes. The combination of earned income and the income you draw from Social Security and/or a retirement account can push you into a higher tax bracket. That's become more of a concern recently, following the passage of a law that allows workers 65 and over to earn as much as they want without losing any Social Security benefits.
What can you do to prevent the "bracket creep" during retirement? For one thing, if you don't start taking Social Security distributions as soon as you retire, you may be able to go back to work without being forced into a higher bracket. Furthermore, by waiting to take Social Security payments until you reach full retirement age, and by adding extra years of earnings, you may well increase your eventual distributions.
If you return to work during retirement, you'll also want to consider the effect on your 401(k) which, as you know, offers tax-deferred growth on earnings Now, thanks to a recent change in the law, active employees over age 70-1/2 no longer have to take mandatory withdrawals from their current employer. That means your 401(k) can keep growing. If you are 70-1/2 or older, and you do change jobs, you must take withdrawals from your previous employer's 401(k) plan. However, you may be able to contribute to your new employer's 401(k), and you might even qualify for an employer match. Remember, though, that most 401(k) plans don't fully vest employer contributions until after four or five years.
Another potential advantage of returning to work is the medical insurance you may receive from an employer.
So make your plans carefully, consult with your tax and financial professionals, and then, if it's appropriate for your situation, say "hello" -- again -- to the world of work.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com