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What You Need To Know
If You Work Past Age 65: Consumer Reports
July
10, 2002 – Although working beyond the traditional retirement age
sounds like a bummer, it has its advantages. Not only can your nest
egg grow because you continue to add to your employer's retirement
plan, but you may be eligible for employee healthcare coverage to pick
up what Medicare won't.
Consumer Reports' finance experts bring consumers who are considering
working past retirement the facts they need to make an informed
decision in the August 2002 article "Working past 65."Roughly 4.3
million people age 65 or older are in the work force. As the senior
population swells, the number is bound to grow. And, starting next
year, the age at which workers qualify for Social Security will
gradually rise to age 67 for those born after 1959. Here are the
considerations that should figure into consumers' retirement planning:
· To
withdraw or not? Waiting to start drawing on your Social Security gets
you more. The monthly payment at age 70, for example would be $1,325
for someone who passed up $1,000 at age 65. Forgoing the first five
years of payments, however, is costly. You'd be giving up a total of
$60,000 to reap $325 more a month, or a total of $3,900 a year; you'd
need to collect for about 15 years before coming out even.
·
The same is true of a defined benefit pension you receive from an
employer. Just the opposite is true of your tax-deferred retirement
plans. Delaying withdrawals will allow your funds more time to accrue
tax-free so that you'll have more money when you stop working. Of
course, you'll have to be able to live off your salary and Social
Security in the meantime.
·
Penalty kicks. You must comply with required minimum-distribution
rules. They kick in at age 70∏, the age at which you must start
withdrawing money from all your plans, except your current employer's
should you continue to work. It requires you to take out an amount
based on your life expectancy, a figure estimated by the IRS. You can
then report this as income and pay tax or roll the money into an
Individual Retirement Account or other tax-deferred retirement plan.
· Sticking with folks you know. If you
continue to work for your current employer you won't have to wait a
year or so to sign up for a retirement plan. A new company may make
you wait up to 30 days to enroll in its health plan. Also, a provision
of the 1996 tax law allows you to postpone taking distribution from
your employer's retirement plan until you actually do retire--even if
you're older than 70.
·
Running your own show. Starting your own business can save even more
tax-deferred funds to make up for the distributions you'll have to
take out after age 70∏. IRAs, SEP-IRAs, and 401(k) s are some of the
saving incentive plans available for small business owners.
·
Thinking small. Don't be hesitant to join a smaller firm. The majority
of smaller companies offer extra benefits such as paid sick and
bereavement leave, membership to professional organizations, and
flexible time.
The
article contains a list of issues--including income tax
matters--relevant to Social Security recipients. Among these, if you
collect Social Security before age 65, you will lose one dollar in
benefits for every two you earn over $11,280. "Working past 65" is
part of Transitions, a new series that deals with financial issues
related life stages. More information is available at
www.ConsumerReports.org.
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