Even though 41% viewed retirement as a time to never work for pay again, the majority said the ideal approach to retirement was to remain working at some level, according to the Edward Jones survey.
Local experts offered tips for people considering retiring or those who have retired and are thinking of returning to the workforce.
Topping the list is gathering information in advance of making a decision. Experts recommend that potential retirees first consult their employer’s human resources office and the Social Security Administration, visit the Medicare website or a Medicare consultant and talk to a professional financial advisor and a tax attorney.
Here’s are some of the key things to consider.
Social Security and Medicare implications
Everyone’s situation is different, but experts say a good rule of thumb is to not start drawing Social Security until reaching full retirement age, which ranges from 65 to 67 based on birth year. Taking Social Security early means the monthly check will always be less than it would have been had the retiree waited until full retirement age.
Set up a personal “my Social Security” account at the Social Security Administration website to get estimates of retirement benefits, income and the effects of different retirement ages.
For retirees who take Social Security early and then get a job the annual earnings limit is $19,560, said Theresa Busher, public affairs specialist for the Social Security Administration. The penalty is a reduction in the Social Security monthly check of $1 for every $2 over the limit.
The only way to get around that penalty is to set up a deferred compensation arrangement at the new employer, said Ben Feldmeyer, a certified financial planner and private wealth advisor at Feldmeyer Financial Group in Centerville.
There are no income limits or penalties for people who wait until full retirement age to draw Social Security.
Retirees who return to work will have Social Security and Medicare taxes withheld from their paychecks and that could have a positive effect on future Social Security checks.
“The benefit amount may increase due to work. As long as an individual continues to work, even if they are receiving benefits, they will continue to pay Social Security taxes on their earnings,” Busher said.
At least three to six months before retiring, talk to an expert about Medicare, as it can take two or three months to get it, said Tracy Goodpaster, agency owner of The Medicare Connection in Kettering.
She said people considering returning to work may get hired by a company that offers health insurance, which she said can be helpful as secondary insurance.
Goodpaster strongly recommends against dropping Medicare even if the new job offers great insurance.
“Most times Medicare is less expensive than employer group coverage. That along with the fact that turning your Medicare off then trying to restart it can be challenging and takes a considerable amount of time,” she said. “That makes keeping Medicare an easier choice.”
Pensions and retirement funds
Defined benefit pension plans are rare in the private sector as companies switched to 401(k) and other defined contribution plans that rely heavily contributions from the employee.
In 1975, 19% of workers had a defined benefit private pension plan, a number that declined to 8% in 2019, according to the Edward Jones report.
As a result, most people are dependent on Social Security alone or that plus savings and personal retirement funds, either through work or an individual IRA.
After plunging in the early weeks of the pandemic, the stock market rose, padding those retirement funds. But declines this year shrunk those accounts.
Feldmeyer and Elliott advise against panic.
“It’s not timing the market, it’s time in the market,” Elliott said. “A well-diversified portfolio that follows a long-term strategy does have better stability. So staying the course in the long run absolutely does make sense.”
One tip for people who’ve reached age 72 and must begin taking mandatory minimum distributions from their 401(k) is to wait until the end of the year, when hopefully the market will restore those losses.
If you are 72, you can send the mandatory distribution directly to a qualified charity and avoid paying taxes on it, Feldmeyer said. He also suggests converting those minimum distributions to an IRA, which offers greater investment choices, or use it to purchase other income-producing investments.
Feldmeyer suggests retirees have a combination of investment plans: qualified, such as pre-tax 401(k) and IRAs; non-qualified after-tax investments, such as brokerage accounts that are taxable; and a Roth IRA which uses after-tax money that can be withdrawn tax-free for people 59.5 years and older.
Elliott recommends that people write down what they spend money on, a process that can be quite revealing in determining what are necessary costs verses those which are discretionary.
“And also looking at the sources of income that they have. And do those sources of income provide a cost of living or an adjustment for inflation?” Elliott said. “That’s where dividend-paying stocks have become very popular because corporations are increasing the amount of dividends that they are paying. That’s a good offset to inflation.”
Social Security Administration: https://www.ssa.gov/
Dayton Region - 888-329-5724
National toll-free - 1-800-772-1213
Medicare - Medicare.gov
In yesterday’s Dayton Daily News: Retirees who left jobs during the COVID-19 pandemic can help ease the labor shortage. Money worries caused by high inflation and investment losses motivate some, while others are looking for new challenges by returning to work. The Dayton Daily News is committed to exploring issues most important to our local economy, including this two-part series.
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