Some people intend to do the exact opposite and never retire, despite the widespread popularity of the Financial Independence, Retire Early movement. Their reason for working is enjoyment. When at the top of your game, why retire?
The concept of working extended hours is gaining traction. According to Pew Research Center researchers, the proportion of older working adults is rising along with their sheer numbers. According to Pew, “Numbering roughly 11 million today, the older workforce has nearly quadrupled in size since the mid-1980s.” Pew reports, “The share of older adults holding a job today is much greater than in the mid-1980s. Some 19% of adults ages 65 and older are employed today. In 1987, only 11% of older adults were working.”
Beyond financial compensation, working later in life offers a plethora of advantages, including:
For those who intend to keep working, consider these financial tips:
A financial planner believes that saving for financial independence rather than a particular retirement age is the key to success. Possessing resources and sources of income to sustain your way of life for the rest of your life is financial independence. Work for yourself, not because you have to.
Never presume that you can work for someone else. If your health or other circumstances, like losing your job, prevent you from working, financial independence means you will be able to support yourself.
Think that you might decide to change your mind. You have no idea what the future will bring. Thus, keep the option to go in a different direction reserved.
Workers frequently postpone taking Social Security benefits to benefit from the projected 8% annual benefit amount increases. Delaying taking your Social Security benefits past your full retirement age may be a good idea if you are still employed and don’t require additional money to support your lifestyle.
Remember that Social Security benefits stop increasing after age 70, so don’t wait. There’s no point in delaying any longer after you turn 70. You can invest the money if you don’t need Social Security income to cover your living expenses.
If your 401(k) contributions are fully funded and you have extra income, you may want to look into tax-advantaged investing. A Nonqualified Deferred Compensation plan might allow you to defer a larger portion of your pay. Many employers provide their high-earners with NQDC plans. You may postpone a portion of your pay before taxes if you qualify. Every plan is unique. Thus, go over the information with the benefit specialist at your company.
Select investments that offer tax benefits outside of your retirement plans. Bank account interest is subject to the highest rates of ordinary income taxation. Take into account tax-exempt investments, like tax-free municipal bonds or bond funds, or investments that pay dividends that qualify for a lower tax rate.
If you are in a high marginal tax bracket, talk to your tax and financial advisor about the best tax-favored investments.
You might qualify for a Health Savings Account if your employer offers a high deductible medical plan and Medicare does not cover you. If this account is used for eligible medical expenses, there is a triple tax benefit. An HSA allows for pretax investments, tax-deferred account growth, and tax-free withdrawals for qualified medical costs. If you have an individual health plan, you can invest $4,150 in 2024; if you have a family plan, you can invest $8,300. Employees 55 years of age and above are eligible for an additional $1,000 catch-up contribution.
If you decide after age 65 that you don’t need the money for medical expenses, you can withdraw money for any purpose without incurring penalties. Should the monies not be utilized for an eligible medical expense, you only have to pay taxes on the distribution. The regulations governing HSA eligibility and penalty-free withdrawals for employees over 65 are complicated. Don’t forget to speak with your tax advisor.
Don’t forget to withdraw your required minimum distributions from qualified retirement plans or traditional IRAs. The IRS states that your required minimum distribution will start on April 1 of the year that follows the year that you turn 73. Work with your financial and/or tax advisor to ensure you don’t miss the deadline, as the noncompliance penalty is a severe 25%.
Don’t think that just because you are still employed, you are exempt. If you are still employed, your current employer’s plan might not be subject to the RMD requirement. Note that the plan offered by your present employer is an exception. Even if you are still working, the RMD regulations still apply to IRAs and 401(k) plans from previous employers.
But make sure to ask your employer if the terms of your retirement plan permit ongoing deferral.
For some people, working might seem like a tedious task. When your job is something you love, things are different. Working can be the motivation you need to get out of bed in the morning when you are financially independent and have free will about how you spend your time.
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