Retirement is supposed to be the most awaited part of one’s life but for some older Americans it turns out to be just a momentary status. Even after leaving a 40 hours week of work behind, a lot of retirees find themselves doing a part-time work - the opposite of their initial retirement plan.
It’s noticeable how the trend of people retiring from a long-term career and later on end up looking for a part-time job has increased over time. You’re probably one of those who is still working at age 70, 71, or 72 and this is because they feel a sense of value they once felt from their long-time professional career.
The Bureau of Labor Statistics showed 54.7 percent of people from the age 60 to 64 doing a part-time job in 2017. As for people aging 65 to 69, 31.2 percent of them were still working last year.
Are you currently working to meet your personal, fulfillment, or financial needs? Then you have to know how part-time work can affect some areas of your financial life. You probably have an idea, but allow us to break them down to you for a much better understanding.
Reduced Social Security Benefits
If you take your Social Security before you reach your full retirement age and are still working part-time, your income could reduce the benefits you will receive. Although you can receive a higher monthly check when you delay your social security for as long as possible, it’s common for a lot of people to take it as they age 62 or sooner than that.
However, even if you get those monthly checks early, a limit is imposed on the amount of money you earn from working and your benefits won’t be affected. The cap for 2018 is $17, 040. Earning more than the said amount will reduce your benefits by $1 for every $2 you earn above that threshold.
As soon as you reach full retirement age which is around 66 or 67 (whatever your birth year will help determine your exact age) you will get your money back in the form of a higher monthly check. Don’t forget about the federal income tax you’ll face for up to 85 percent of your Social Security benefit and depending on your overall income. This will allow you to earn as much as you can from working without worrying about your Social Security benefits being touched.
Furthermore, early takers who are working and has reached full retirement age during 2018, will expect a deduction of $1 in their benefits for every $3 that they earned higher than $45, 360.
Additional Costs for Medicare
Having additional income will not only move you into a higher tax bracket, but you may also need to pay higher Medicare expenses too. The higher earners basically pay a surcharge for Medicare Part B (outpatient coverage) and Part D (prescription drugs). The extra charges will be observed for income above $85, 000 for individuals and $170, 000 for married couples filing joint returns.
Pay Attention to RMDs
Some retirement accounts will ask you to meet the required minimum distributions when you reach age 70 and a half. You might overlook those RMDs when you’re employed. It’s important that you know you’re still taking the distributions even if you’re working but is retired.
If your work is involved with the 401 (k) plan, you generally can still make contributions and not take the RMDs from that workplace plan. The only thing you need to do is take those distributions from any traditional individual retirement account you’re enrolled into because if you don’t you’ll face a painful 50 percent penalty tax.
Keep in mind that Roth IRAs do not have RMDs if the principal owner is still alive.
Is your retirement doomed if you have student loans after 40?
The increasing number of older Americans going back to school is an important financial move that must be carefully checked. When you put your career first and stop saving for retirement, you could put your future at risk. Going back to school to earn more money or further your career needs to make financial sense to ensure you won’t face potential financial issues in the future.
