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The Working “Retirement”

The majority of workers (56%) plan to work past age 65, including 43% who plan to work past age 70 or do not plan to retire at all, according to a survey by the Transamerica Center for Retirement Studies. More than half (54%) plan to continue working after they retire. An AARP survey showed that 80% of baby-boomers plan to take on a job after retiring.


According to the 2013 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), 43% of workers plan to continue working after age 65, more than double the low 18% back in 1998. Also: The number of workers planning to retire before age 65 has dropped from 49% in 1998 to 23% in 2013.


The recent recession, coupled with the collapse in home values, may explain part of the increase in folks working longer than expected. Many people simply haven’t been able to accumulate enough capital to become financially independent, which is what retirement means. Another part is that some highly skilled employees are able to become consultants to their prior employers, either working part-time or as self-employed free-lancers. A third group aims to break into a second career, pursuing a vocation or avocation that had to be put off during the working years.


If you will have earned income in retirement, you probably will want to delay receiving your Social Security benefits. Everyone is eligible to begin reduced early-retirement benefits at age 62, with the amount of reduction a function of your full retirement age (from 66 to 67, depending upon the year of birth). Benefits are further reduced for those with earned income (investment income does not count). This is called the “earnings test.”  The earnings limit in 2013 is $15,120. For every $2 earned above the limit, benefits are reduced by $1.


A different rule applies in the year that one reaches full retirement age. In that year, the earnings limit is $40,080, and the reduction is $1 for every $3 over the limit until the month that the full retirement age is reached. After reaching full retirement age, the earnings test no longer applies.


Even so, it may pay to delay Social Security benefits until reaching age 70. For every year of delay after reaching normal retirement age, benefits will be boosted by 8%. If the retirement job will provide enough money to cover living expenses, delaying benefits can be a good way to boost the cash flow in one’s 70s and beyond.


Medicare coverage begins at age 65, independent of one’s decision on Social Security benefits. Those who retire earlier than that age need to take a hard look at their health and dental insurance coverage. If you are shifting to part-time work or a consultancy for a former employer, participation in the company’s health insurance plan could be a point of negotiation for compensation. When you’ve separated from service, up to 18 months of COBRA coverage may be available through your former employer. COBRA premiums are likely to be significantly lower than those for individuals on the open market.  A trust company is a good resource to parse through the different scenarios that you should be exploring. As a fiduciary, a trust company must always put your interests first. Contact Leah Murray at Central Trust & Investment Company. 314.746.4628.